Mistakes may happen during the submission process for the voluntary disclosure practice, or VDP, including in complex cases where certain entities or bank accounts may have been omitted, according to Daniel Price, a senior attorney with the Internal Revenue Service's Office of Chief Counsel. In these cases, participants can write to the IRS' Criminal Investigation division, or CI, and explain the nature of the omission or mistake, he said, speaking during a virtual conference hosted by Freeman Law PLLC.
Specifically, the supplemental disclosure letter must include relevant information from the original disclosure and provide a timeline for when the practitioner discovered the mistake, according to Price. The letter must also include a request for CI to evaluate the supplement to allow the individual to stay in VDP, he said.
For individuals who face possible criminal investigations from the IRS, including for failing to disclose offshore bank accounts, the agency's long-standing VDP provides a process to come into compliance while potentially avoiding prosecution.
Participation in the program requires applicants to tell "the complete story" of their noncompliance with a narrative that includes personal and professional background information, according to the Internal Revenue Manual, which said those with incomplete narratives won't get an opportunity to supplement their submissions.
The inability to update submissions appeared "unduly strict" to members of the American Bar Association's tax section, who raised concerns about the narrative requirement in a September letter to the IRS.
The members said this IRM section struck them as "failing to take into account the common occurrence of innocuous, minor errors ... particularly for voluntary disclosures with conduct that might span decades and factual situations where other actors were involved (e.g., estates)."
The IRS announced updates to its disclosure practice in November 2018 following the termination of the agency's Offshore Voluntary Disclosure Program. First offered in 2009, the OVDP had allowed those who willfully failed to file foreign bank and financial account, or FBAR, forms to get lower penalties and protection from criminal liability if they came forward.
Specialists have noted that although the disclosure practice isn't as lenient as the OVDP, it still offers a way to avoid criminal referral.
The importance of the narrative component on Form 14457, which is needed for entering the disclosure practice, can not be overstated.
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