3 Types of IRS Disclosures: Understanding the Benefits (and Risks) of Each

For U.S. taxpayers who are behind on their federal filing or payment obligations, engaging with the IRS proactively is generally the best approach. Typically, this involves making some sort of disclosure to the IRS. But, while IRS disclosures can be beneficial, they can also be very risky. As a result, if you are considering a disclosure, it is important that you consult with an experienced Boston tax attorney before moving forward.

How Can (and Should) Taxpayers Disclose Violations to the IRS?

When you consult with an experienced Boston tax attorney, your attorney will help you carefully evaluate the options that you have available. Typically, IRS disclosures will take one of three main forms:

1. Delinquent or Amended Return

In some cases, the first step toward resolving a federal tax controversy is to file a delinquent or amended return. Delinquent and amended returns can both be used to resolve filing and payment deficiencies in appropriate circumstances.

However, U.S. taxpayers must be very careful to avoid “quiet” disclosures, which involve disclosing past filing errors in current filings. The IRS disfavors “quiet” disclosures, and they do not provide any protection against IRS enforcement.

2. Voluntary Disclosure

Voluntary disclosure is an option for U.S. taxpayers that have willfully violated the law. Submitting a disclosure under IRS CI’s Voluntary Disclosure Practice does not guarantee immunity from prosecution, but it can result in prosecution not being recommended. By working closely with experienced tax counsel, taxpayers can use voluntary disclosures to resolve significant tax controversies without enforcement in many cases.

3. Streamlined Filing

Streamlined filings are a third option for U.S. taxpayers who are behind on their offshore account disclosures. Offshore account disclosure violations can expose taxpayers to substantial penalties, and submitting a streamlined filing can mitigate the penalties owed while also sidestepping the risk of an audit or investigation. However, noncompliant streamlined filings can tip off the IRS to taxpayers’ offshore account disclosure deficiencies (while also failing to provide protection), so a careful approach is critical here as well.

Mitigating Tax, Interest, and Penalty Liability in Connection with an IRS Disclosure

While disclosing a tax violation to the IRS may also involve paying the full tax, interest and penalties owed in some cases, taxpayers can also have various options for seeking to limit how much they owe. Some examples of these options include:

• Filing for penalty relief or penalty abatement
• Seeking an IRS settlement agreement
• Submitting an offer in compromise (OIC)

Along with helping you make an informed decision about IRS disclosure, an experienced Boston tax attorney can help you decide whether to pursue one of these options as well. If pursuing one of these options makes sense, your attorney can then work with the IRS to seek appropriate relief on your behalf.

Request a Confidential Consultation with Boston Tax Attorney Kevin E. Thorn

Do you have questions about submitting a disclosure to the IRS? If so, we encourage you to contact us promptly for more information. To request a confidential consultation with Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989 or tell us how we can get in touch online today.