TIGTA Proposes Improvements to Offshore Accounts Voluntary Disclosure Program

Voluntary disclosure practices that allow taxpayers to voluntarily disclose the existence of offshore accounts or assets to the Internal Revenue Service (IRS) are generally effective, according to a new report publicly released by the Treasury Inspector General for Tax Administration (TIGTA).

Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS. If caught, these taxpayers face the imposition of substantial penalties, including the fraud and foreign information return penalties, as well as an increased risk of criminal prosecution. By making an offshore voluntary disclosure, taxpayers can become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution.

TIGTA’s audit was initiated to determine whether the IRS’s voluntary disclosure practices were effective, especially with the high volume of cases received, and to determine whether all cases have been appropriately assigned and worked.

TIGTA found that the IRS’s voluntary disclosure practices were effective, and cases were being appropriately assigned and verified even with the unusually high volume of disclosure requests received and accepted. However, some improvements are needed. Specifically, TIGTA’s review of 60 closed voluntary disclosure cases showed that 18 cases had no evidence of the taxpayers reconciling the unreported income in their offshore accounts to their amended or newly filed delinquent tax returns.

Further, in 28 cases, information from the taxpayers’ financial accounts either was not captured or was incorrectly transcribed on the data collection system used for current and subsequent data mining efforts. In 31 cases, voluntary disclosure agreements were not printed on IRS watermarked paper or initialed by revenue agents on each page to ensure no alterations to the original document were made by taxpayers.

TIGTA recommended that the Commissioner, Large Business and International Division, implement a requirement for taxpayers to provide a detailed reconciliation of unreported income.

The Commissioner, Large Business and International Division, and the Commissioner, Small Business/Self-Employed Division, should develop a quality review process to ensure all data relating to voluntary disclosures are properly transcribed for future data mining and require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.

In their response to the report, IRS management agreed with two of the three recommendations. Management disagreed with the recommendation to require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.

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