On Nov. 29, 2018, the IRS released a memorandum that contains a new civil resolution framework for making both offshore and domestic voluntary disclosures received or postmarked after Sept. 28, 2018. The updated procedures follow a long-standing practice of the IRS to provide taxpayers with the opportunity to come into tax compliance and substantially lessen the risk of criminal prosecution. There are, however, many changes from the former 2014 Offshore Voluntary Disclosure Program (OVDP) that make this program less attractive. The new program includes changes to the disclosure period and the nature and size of the penalties imposed. It does, however, provide welcome clarity following the closure of OVDP. Nevertheless, acceptance into a voluntary disclosure arrangement is never assured and depends on the individual facts and circumstances involved in each case. Because of potential significant penalty exposure, taxpayers with unreported income (domestic or foreign) must carefully weigh their options as to how best to comply with their tax obligations, including taking advantage of voluntary disclosure mechanisms.
The objective of the IRS’s voluntary disclosure practice is to provide U.S. taxpayers with unreported, or underreported, income or assets with the means to come into compliance with the law and potentially avoid criminal prosecution. As in prior voluntary disclosure programs, taxpayers under IRS criminal investigation are not eligible to participate in the updated voluntary disclosure program.
