This voluntary program includes unpaid deficiencies and unpaid taxes, such as employment, gift or estate taxes, instead of federal income tax. The program also addresses other taxes and sanctions, such as the FBAR or foreign bank and financial accounts, and general sanctions for those concerned that their actions will result in a deliberate violation of reporting requirements. Line 6 requires a “yes” or “no” answer to recognize whether someone, including a foreign government or a foreign financial institution, informed the taxpayer that a taxpayer's foreign account records, which are subject to voluntary disclosure, could be released to the United States. In short, the new program contains some important changes compared to the previous OVDP, but the new program offers significant benefits with respect to the mitigation of sanctions and the continued mitigation of criminal exposure.
See the instructions attached to Form 14457, Prior Authorization and Request for Voluntary Disclosure Practice (PDF), for the most current voluntary disclosure procedures. One of the most important changes in the program is the IRS's stance on taxpayer cooperation during the audit. Fortunately, the new program states that penalties for not filing informational statements will not be imposed automatically. The instructions in Form 14457, which include 12 pages, not only provide line-by-line guidance on how to complete parts I and II, but also provide information on what a taxpayer can expect when participating in the program, possible applicable penalties attributable to income tax, wealth, gift tax, transfer tax that skips generations, payroll tax and informational returns, and penalties for non-compliance with the FBAR.
In other words, taxpayers cannot avoid paying a transition tax on the profits and benefits of CFCs in which they are U.S. shareholders during the period leading up to the disclosure. The practice of voluntary disclosure is an enforcement option if you have committed tax or tax-related crimes and are exposed to criminal offenses due to a deliberate violation of the law. It will apply at least one year from all voluntary disclosures and deliberate sanctions will be applied by the FBAR to all cases related to non-compliance with the FBAR in which the facts and the law support the assertion of a deliberate FBAR sanction.
It is important to note that the VDP program allows the taxpayer to comply with the program and for the IRS to take steps during the process to determine the amount of penalties requested by the auditor or other IRS personnel. If you have deliberately failed to comply with your tax or tax-related obligations, submitting a voluntary disclosure can be a way to resolve your non-compliance and limit the risk of being criminally prosecuted. While making a voluntary disclosure will not automatically guarantee the taxpayer's immunity from prosecution, the IRS-CI will take it into account, taking into account all other facts and circumstances when recommending criminal prosecution. The IRS Criminal Investigation Division (“IRS-CI”) continues to encourage taxpayers who do not comply with regulations, who have not filed tax returns, or who have intentionally filed false or fraudulent returns, to participate in its current voluntary disclosure practice.