US Introduction

On occasion, a US person intentionally or inadvertently fails to disclose to the Internal Revenue Service ('IRS') income from certain sources (i.e. foreign bank and security accounts).  In an effort to assist taxpayers to comply with the US federal tax laws with regards to past noncompliance, the IRS has instituted the voluntary disclosure practice. Generally, a voluntary disclosure is the process whereby a taxpayer voluntarily reports previously undisclosed income through by direct contact with the IRS Criminal Investigation Division ('CID').  Generally, the IRS CID agent will discuss the issues and facts involved with the taxpayer's noncompliance.  Following this discussion, the IRS CID agent will inform the taxpayer if his voluntary disclosure is accepted by the IRS.

A voluntary disclosure must be truthful, timely and complete to be accepted. The taxpayer also must show a willingness to cooperate with the IRS in determining the correct tax liability and must make good faith arrangements with the IRS to pay in full, the tax, interest and any penalties determined by the IRS. If the agent confirms that the taxpayer has made a valid voluntary disclosure, then the taxpayer will be required to prepare and file amended or delinquent tax returns and pay any appropriate taxes and interest. Generally, a valid voluntary disclosure results in the IRS CID not recommending criminal prosecution to the Department of Justice.

On March 23, 2009 the IRS issued a temporary reduced penalty for taxpayers who come forward before October 15, 2009. Disclosures after October 15, 2009 will be subject to the normal statutory penalties. For more information please contact a US TAX advisor or see the client brief.