Tax Law

Voluntary Disclosures Save You From Criminal Tax Prosecution

Editor's Note: The following is an excerpt from Tax Controversies: Audits, Investigations, Trials (Matthew Bender)


The Service's current pronouncements of its voluntary disclosure policy make no distinction between tax offenses. In practice, however, the Service has always drawn a sharp distinction between the felonies of tax evasion and filing a false return, on the one hand, and the misdemeanor of failing to file a return, on the other hand. In the case of felonies, a true voluntary disclosure is given great weight by the Service and the Department of Justice, but is not necessarily conclusive in preventing a criminal referral or prosecution, especially of a tax case with aggravated facts. In the case of failure to file, however, it is almost unheard of for the Service to institute a criminal investigation of a taxpayer who filed accurate delinquent returns prior to his or her case being referred to the Criminal Investigation Division. 

Historically, it had been the Service's policy not to recommend prosecution of a taxpayer for failure to file returns if the taxpayer filed the delinquent returns after being contacted by the Service Center of the IRS. This policy treated the taxpayer's subsequent filing of returns as though it was a voluntary disclosure even where the taxpayer had been contacted by an IRS collection officer about the delinquent returns.  So long as the taxpayer was not under criminal investigation, the filing of delinquent returns was treated as a voluntary disclosure. While the IRS's current publicized voluntary disclosure policy allows a taxpayer who has not filed tax returns and has received a notice from the Service, stating that it has no record of receiving the returns, to make a voluntary disclosure by filing complete and accurate returns, the stated policy does not appear to cover a taxpayer who has been contacted personally by a Revenue Agent (Examination Division) or Revenue Officer (Collection Division). In actual practice, however, practitioners continue to have success in making voluntary disclosures in failure to file cases even after in-person contact from the Service, so long as the contact is not by a special agent and there is not an existing criminal investigation.

The Internal Revenue Manual still publishes a policy, sometimes known as the "solicitation policy," which acknowledges the Service's practice, upon discovering that a taxpayer has failed to file a return or returns, is to contact the taxpayer and request that the delinquent returns be filed. All such returns will be accepted by the Service. However, where there are indications that the failure to file was willful or due to fraud, the solicitation should not be made.

RELATED LINKS: For insight on voluntary disclosure of offshore accounts, see:

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