Right To Proceed In The IRS Appeals Office

An additional change to the civil resolution framework is that taxpayers who cannot reach agreement with the IRS will retain the right to go to Appeals to try and resolve the issues. Questions remain regarding the Appeals process and it is unclear whether taxpayers who request an appeal will still be subject to the protections of the voluntary disclosure program. For example, the new procedures allow for IRS agents to request revocation of preliminary acceptance into the voluntary disclosure program when taxpayers fail to cooperate with the civil disposition of the case. Therefore, it remains unclear if taxpayers who reject an agreement with the IRS and wish to seek relief with Appeals will lose their protection from criminal liability.  (Under OVDP, taxpayers generally retained that protection so one would expect the same result now.)

Domestic Voluntary Disclosures

The release of new procedures brings the domestic voluntary disclosure program in line with the offshore voluntary disclosure program. Before the release of the new procedures there was no true conformity between the two programs and the rules that applied to OVDP did not necessarily apply to domestic disclosures. For example, there was no set disclosure period or penalty regime, and the procedures depended on the facts and circumstances involved in each case. The new voluntary disclosure procedures provide greater transparency for taxpayers with solely domestic non-compliance issues.

Benefits Of The New Procedures

The new procedures should ease the concerns of taxpayers that wish to come into U.S. tax compliance but have concerns about potential criminal liability. A timely voluntary disclosure and cooperation will protect them from criminal prosecution while resolving their civil tax and reporting issues.

Under the new procedures, voluntary disclosures will continue to be resolved by agreement, presumably a Form 906, Closing Agreement. The agreement offers taxpayers finality, which taxpayers participating in other compliance programs do not receive. Taxpayers participating in the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures, and the Delinquent International Information Return Submission Procedures, may never hear from the IRS after they file their submissions.

The Financial Cost

The new procedure allows the IRS to potentially impose additional and larger penalties on taxpayers filing a voluntary disclosure in some circumstances but these circumstances have not been articulated. Under the new procedures, albeit not intended for the run of the mill disclosure case, the IRS has discretion to impose a litany of penalties, as well as the discretion to determine the size of the penalty. Although penalties for the failure to file information returns will not be automatically imposed, IRS agents have the ability to impose them during the resolution of the voluntary disclosure in what they determine to be appropriate circumstances. As a result, some taxpayers could face a broad range of potential additional penalties not enumerated in the memorandum.

Conclusion