UNFILED and FRAUDULENT RETURNS

Seeking Compliance For Unfiled or False Tax Returns

Speak with a Tax Attorney before the IRS catches up with you

Unfiled and Fraudulent tax returns may lead to criminal charges pursuant to Internal Revenue Code Sections, 7201, 7202, 7203, and 7206. These matters are frequently referred by civil IRS agents to the Criminal Investigation Division where special agents are assigned the responsibility to investigate the matter. When the investigation is completed the special agents will write a report that reviews the facts and circumstances of the case and the evidence that supports the allegation of criminal conduct. Once an investigation has commenced, the primary focus of the special agents is to gather sufficient evidence to warrant the taxpayer being charged. At this stage, the taxpayer is not given the option to pay the tax he owes in lieu of being criminally indicted.

When a taxpayer has unfiled or fraudulent tax returns, he may avoid criminal investigation if the taxpayer applies for a criminal investigation division voluntarily disclosure practice. The IRS encourages taxpayers with delinquent or fraudulent tax returns to voluntarily come forward and file proper tax returns and pay the appropriate taxes.

To qualify to participate in the Criminal Investigation’s Voluntary Disclosure Practice the taxpayer must meet certain criteria.

1. The taxpayer willfully did not file a required tax return or filed a fraudulent tax return;    
2. The taxpayer did not obtain the money being reported from an illegal source;
3. The taxpayer has not received any notice from the IRS that he is about to be investigated or audited;
4. The taxpayer will pay the tax in full.

If the taxpayer is accepted into the voluntary disclosure practice the taxpayer will not be required to file or amend more than six tax returns. In Addition, the IRS will limit the fraud penalty (Up to 75% of the tax) to a single tax return. The IRS will normally apply the fraud penalty to the return resulting in the largest amount due.
If a taxpayer is accepted into the voluntary disclosure practice and fully cooperates with the IRS the criminal investigation division will recommend that the taxpayer NOT be prosecuted.

The practice does not apply laws to individuals with income determined to be legal under state law but illegal under federal laws. If a taxpayer has made one or more mistakes on his tax returns but did not act willfully, the taxpayer should consider filing amended tax returns without applying for a disclosure practice. 
Before you apply for voluntary disclosure practice participation the taxpayer should apply for preclearance. This process permits the taxpayer to learn from the IRS whether he will be accepted for the voluntary disclosure practice if he submits a formal application.  

The Voluntary Disclosure Practice may be found in the Internal Revenue Manual (IRM) 9.5.11.9  The IRS is presently in the process of removing the check box from its voluntary disclosure practice application that relates to willfulness.  Until recently, the voluntary disclosure practice application required the taxpayer to acknowledge that he had acted willfully regarding his tax issues by checking a box on the application that stated that the taxpayer had acted willfully.  This check box has caused taxpayers to be reluctant to participate in the VDP. As a result the IRS has stated that it is in the process of removing the subject check box from the application in the future.

If you have unfiled tax returns or tax returns that could be considered fraudulent you should speak with a tax attorney before the IRS catches up with you and it becomes too late to apply for acceptance to the VDP.   Now is the time to get back into compliance.