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Tax Amnesty

FAQ: IRS Tax Amnesty Programs

IRS amnesty programs are initiatives designed by the Internal Revenue Service (IRS) to encourage taxpayers to disclose and correct previously unreported income or tax errors voluntarily. These programs offer significant benefits, including reduced penalties and avoidance of criminal prosecution.

IRS Tax Amnesty Programs
Tax amnesty programs aim to encourage taxpayers to correct unreported income or errors.

If you are late and attempting to catch up with the Internal Revenue Service (IRS), some amnesty programs can catch you up with no penalties. The IRS Streamlined Procedures is the most popular and advantageous of the IRS amnesty programs.

Under this program, a late filer can just come clean with the IRS with possibly no penalties by filing tax returns, with all required information returns, for the prior three years and any delinquent Foreign Bank and Financial Account Report (FBAR) for the prior six years.

However, to qualify for the Streamlined Procedures, you must demonstrate that your prior non-compliance was not willful in a written statement. You might need a tax expert to ensure you have the best opportunity to qualify for the amnesty program.

While the Streamlined Procedures amnesty program is the more popular solution for late filers, the IRS offers other options depending on the circumstances.

These options include the voluntary disclosure program for taxpayers concerned that the IRS might view their delinquency as willful and seek to avoid potential criminal penalties.

What if You Failed to File Taxes?

If you have failed to file taxes with the IRS, or if there are significant errors, unreported income, or underpayments in your tax filings, you effectively have two options:

  1. You can wait for the IRS to come after you with hefty penalties, aggressive collection tactics, property seizures, and even criminal charges or
  2. You can voluntarily attempt to resolve your tax issues with the IRS before those other tactics become necessary.

To encourage taxpayers to take the second option, the IRS offers a variety of amnesty programs that make it easier for individuals and businesses to disclose and resolve their tax deficiencies while reducing or eliminating the risks of asset seizures or prosecution.

Here's what you need to know if you want to circumvent legal action with one of these programs.

What are the Common Types of IRS Amnesty Programs?

The primary IRS amnesty programs currently available include the following:

  • Voluntary Disclosure Practice (VDP): Designed for taxpayers who have willfully failed to report income or pay taxes, allowing them to disclose past non-compliance and reduce the risk of criminal prosecution while settling their tax liabilities.
  • Delinquent FBAR Submission Procedures (DFSP): For taxpayers who have not timely filed Foreign Bank and Financial Accounts Reports (FBARs) but are not facing any IRS civil examination or criminal investigation, offering a pathway to compliance without penalties.
  • Streamlined Filing Compliance Procedures: Tailored for taxpayers whose failure to report foreign financial assets and pay all tax due on those assets was non-willful, providing a simplified process with reduced penalties.
  • Relief for Certain Former Citizens: Offers relief for specific individuals who have recently relinquished their U.S. citizenship (or plan on doing so) but were not compliant with tax obligations, enabling them to rectify their tax situation without facing steep penalties.

Frequently Asked Questions About Tax Amnesty

Let's discuss many common questions about the tax amnesty programs offered by the Internal Revenue Service below.

Who is eligible for these programs? 

Both individuals and businesses are eligible to participate in IRS amnesty programs. Eligibility criteria vary by program but generally require taxpayers to voluntarily disclose their tax non-compliance before the IRS initiates an audit or investigation. To be eligible, taxpayers typically must:

  • Have unreported income or delinquent tax returns.
  • Not currently under investigation by the IRS.
  • Make a voluntary and truthful disclosure of their tax non-compliance.

Does an amnesty program mean I don't have to pay?

No. Participating in an IRS amnesty program does not mean you are exempt from paying your back taxes. These programs are designed to help taxpayers resolve their tax issues and come into compliance with the IRS, but they do not eliminate the amount of taxes owed.

However, penalties and potential criminal charges may be reduced or eliminated for those who voluntarily disclose their non-compliance through these programs. It

What is the general process for applying to an IRS Amnesty Program?

The application process generally involves:

  • Determining eligibility for the specific amnesty program.
  • Gathering necessary financial records and documentation.
  • Submitting required forms and disclosures to the IRS.
  • Paying any owed taxes, interest, and applicable reduced penalties.

Are there any deadlines for applying to these programs?

Deadlines can vary by program and may change. Additionally, the IRS occasionally discontinues some amnesty programs or launches others. Always check each program's latest IRS guidelines and deadlines to ensure timely application.

What are the advantages of participating in a tax amnesty program?

The primary benefits of enrolling in an IRS tax amnesty Program include:

  • Reduced Penalties: Amnesty programs often reduce or eliminate penalties for late payment or non-filing.
  • Lower Interest Rates: Some programs offer reduced interest on the outstanding tax liability.
  • Avoidance of Legal Action: Participating in an amnesty program can prevent potential legal actions such as liens, levies, garnishments, or criminal prosecution.
  • Peace of Mind: Resolving tax issues through an amnesty program can relieve the stress and uncertainty of owing back taxes.

What are the potential disadvantages of the Tax Amnesty Program?

Despite the benefits, there are some drawbacks to consider:

  • Full Disclosure Requirement: You must fully disclose all relevant information, which may lead to additional scrutiny by the IRS.
  • Potential Costs: While penalties may be reduced, you still need to pay the owed taxes, which can be a significant financial burden.
  • Impact on Future Tax Filings: Participation in an amnesty program might impact your future tax filings and interactions with the IRS, potentially leading to closer monitoring.

Can I negotiate my tax debt with the IRS outside the Tax Amnesty Program?

Yes, taxpayers can negotiate their tax debt with the IRS through other means, such as:

  • Installment Agreements: You can pay your tax debt over time in smaller, manageable payments.
  • Offer in Compromise: An agreement to settle your tax liabilities for less than the total amount owed if you meet specific criteria.
  • Currently Not Collectible Status: The IRS may temporarily suspend collection efforts if you cannot pay due to financial hardship.

Contact our federal criminal defense lawyers for more information. Eisner Gorin LLP is based in Los Angeles, California.

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