There are a variety of situations where taxpayers may be accused of violating U.S. tax laws. These violations may be uncovered during a tax audit, or a taxpayer may have failed to properly report foreign assets and income. In cases where a person may face criminal charges or civil penalties for non-compliance with tax laws, they may be able to come into compliance by voluntarily disclosing information to the IRS. Taxpayers who are considering a voluntary disclosure will need to be aware of some recent changes to tax forms used to report information to the IRS.
What Is Voluntary Disclosure Practice?
Taxpayers are encouraged to disclose information to the IRS that may affect the determination of the taxes they are required to pay. Some disclosures may be civil in nature, for example if the taxpayer has made an honest and nonwillful mistake and omitted disclosure of a foreign account required to be disclosed via annual Forms 114 (FBAR). Such disclosures may be made to the IRS via Streamlined Disclosure Procedures where taxpayers may be required to pay a civil penalty without criminal prosecution. However, the IRS Criminal Investigation (CI) division is focused on uncovering criminal violations of tax laws, and depending on its findings, it may choose to pursue criminal charges against non-compliant taxpayers. If such a taxpayer voluntarily discloses applicable information to the IRS, this may affect the CI division’s decisions on whether to recommend criminal prosecution. Voluntary Disclosure Practice is an option if a taxpayer has willfully violated tax laws, and taxpayers will be required to cooperate with the IRS to determine their tax liabilities and make arrangements to pay the taxes they owe, as well as any applicable penalties or interest.
Updates to Disclosure Preclearance Forms
In Voluntary Disclosure Practice cases, one of the key forms that a taxpayer will be required to submit is Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application). This form will provide information about a person’s tax liabilities, their financial accounts, and other information related to their non-compliance with tax laws. The IRS recently released a revised version of this form, including the following changes:
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