Get to Know: Voluntary Disclosure Practice

It’s not too late. We promise.

We know that may be hard to buy at first, because when you’re on the wrong side of tax law—through tax evasion or tax fraud—it can seem like there’s no way out. We’re just here to tell you that it’s true; it’s never too late to get back on track with the IRS.

Over the past two decades, we’ve dealt with some of the most difficult tax cases imaginable. And we’ve learned that lot of people who commit tax fraud or tax evasion didn’t intend to at first.

It’s actually quite to the contrary! Many of these taxpayers simply missed a tax payment or forgot to include an income stream on their tax return. Once they realize it a few months later, they just aren’t sure how to fix the problem, incorrectly assuming they’ll either owe a huge tax bill, lose their home, or be arrested!

Coupled with a lack of knowledge about the forms and avenues the IRS provides for you to get current and legitimate with your taxes, many people just reluctantly continue down the wrong path for months or years until they’re finally caught.

But even if that’s you—even if you’ve spent years evading your taxes or committing tax fraud—you can still make things right. And for your own future and your family’s future, that’s a step we think you should make.

If you’re interested in coming clean to the IRS, here are a few tips to help you do it.

Get to Know: Voluntary Disclosure Practice

The IRS and our tax system run off the principle of “voluntary compliance.” Essentially, that means that the U.S. Treasury puts the burden of calculating, reporting, and paying taxes on all of us, rather than doing it for us. It’s on us whether or not we comply with tax law, but it is law. And the IRS can impose civil or criminal penalties—anything from fines and penalties to prison time—for those who don’t comply.

The same principle of “voluntary compliance” also underscores coming clean to the IRS. According to the IRS, if you’ve knowingly failed to comply with tax laws, submitting a voluntary disclosure can be a way of getting back on track with the IRS while limiting some of the normal consequences.

What happens during Voluntary Disclosure Practice?

Voluntary disclosure is pretty straightforward. Here’s how it’s described by the IRS:

A voluntary disclosure occurs when you provide a truthful, timely, and complete disclosure to CI through designated procedures. It also requires you to:

  • Cooperate with us in determining your correct tax liability and
  • Make good faith arrangements with us to pay – in full – the tax, interest and any applicable penalties you owe.

So, you have to come clean, work with the IRS to figure out what you owe, and make a genuine attempt to pay.

What makes for a “timely” disclosure?

To take advantage of a voluntary disclosure, you need to get ahead of the IRS.

Think of it like those scenes in films where somebody is fired, and they respond, “You can’t fire me! I quit!” It’s a nice retort, but technically they were still fired. You won’t get much benefit from voluntary disclosure if you wait until the IRS auditor is knocking on your door. You need to be proactive.

The IRS says that a disclosure is considered timely if they receive it before:

  1. They have started a civil or criminal investigation.
  2. They’ve received a tip from a third party informing them of your noncompliance.
  3. They have acquired info about your noncompliance from an enforcement action, like a search warrant or subpoena.

Deciding Whether or Not to Disclose

It can be a little tricky to determine whether or not you’re in a position where you might need to use voluntary disclosure with the IRS.

We’re of the mind that you should always stay on the IRS’s good side; there’s just too much at stake not to try eliminating your problems with tax debt, unfiled returns, and other tax-related issues before they spiral out of control.

With that said, not every tricky tax situation means you’ve “willfully” broken the law. Just because you haven’t filed for a few years doesn’t mean you’re at risk of a criminal investigation, and owing money to the IRS doesn’t mean the police are going to knock down your door! It’s exactly this kind of thinking that scares taxpayers into letting their small tax issues grow into big ones that can really impact your life and livelihood.

Using the Voluntary Disclosure Practice is really just intended for those who are looking to avoid criminal prosecution, and criminal prosecution is not actually that common with the IRS. Realizing on April 16 that you haven’t filed isn’t the same as hiding a revenue stream in a complex set of LLCs to avoid paying taxes on it. Make sense?

Getting Help with Your Tax Situation

Even if you realize you have serious tax debt, you’re probably not quite at the “Voluntary Disclosure Practice” level yet. Regardless, as soon as you realize you may not be in compliance with the IRS, get help.

The best way to do that is by hiring a tax attorney. An expert in federal tax law can help you better understand the situation you’re in. It may not be as bad as you first thought!

For example, maybe you haven’t filed your tax returns for the past three years, but you find out that you didn’t owe the IRS any taxes. In this case, filing your old returns wouldn’t result in penalties—but it might result in an overdue tax refund!

On the other hand, you may discover your tax situation is worse than you thought. Perhaps you owe tens of thousands of dollars to the IRS, a scary thought to say the least. However, a savvy tax attorney may help you negotiate an installment plan or offer-in-compromise to help you get out from under your tax debt!

Coming clean is always a smart idea.

Your tax issues may be as simple as one unfiled tax return, or they may be as serious as tax fraud or tax evasion. Regardless, you’re only endangering your future by not coming clean.

Whether or not you qualify for Voluntary Disclosure Practice, we hope you feel empowered to take the next steps to get back on the IRS’s good side. We’re always here with advice, guidance, and decades of experience working with the IRS on behalf of our clients.

We can make things right—together.

Leave Comments

Free eBook

Tax Settlement Options

Download Now
Having a tax debt is stressful. We can help.