IRS Voluntary Disclosure Practice – Internal Revenue Manual Updated Recently

You may know that the IRS Offshore Voluntary Disclosure Program (“OVDP”) closed, leaving taxpayers who did not fit within the confines of the streamlined programs with scant options for disclosure. As such, anyone who could not certify under penalties of perjury that their failure to report, disclose or pay tax was not willful, was left twisting in the veritable wind.

Enter the Voluntary Disclosure Practice (“VDP”) as an outgrowth of the Internal Revenue Manual itself, section 9.5.11.9 (“IRM”). The IRM has been updated recently and offers taxpayers who do not fit the streamlined mold other options.

Taxpayers should be mindful of the fact that this is a two-part process. Part one entails filling out Form 14457, which is the Voluntary Disclosure Practice Preclearance Request and Application. Part two kicks in when a taxpayer actually receives the preclearance notification. The taxpayer must then submit the balance of the information on this form listed in Part II. Once this form is filed, the taxpayer will then receive preliminary acceptance and file six years of applicable returns (note OVDP was eight) and pay the prescribed penalties which are generally the fraud penalty on underpaid tax (75% of underpayment), as well as an asset-based FBAR penalty of either $100,000 or 50% of the account balance (note OVDP was 27.5% on the highest year balances generally, up to 50% in some cases).

The above is a brief summary of VDP. There are many nuances beyond the scope of this blast.

We welcome questions or comments to melinda.bramwit@rimonlaw.com.

Melinda Fellner focuses her practice on tax matters including federal, state and international tax. Ms. Fellner’s experience includes business structuring, acquisitions and reorganizations, and joint ventures and partnerships in both the domestic and offshore world. She negotiates and drafts operating agreements and drafting organizational and transactional documents for corporate transactions. She has cultivated specific expertise in the international arena, including guiding affected clients through the IRS Streamlined Offshore Programs and the IRS Offshore Voluntary Disclosure Program and assisting with other offshore income issues. Additionally, Ms. Fellner routinely represents clients in federal and state tax controversies. Read More.

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