The IRS has long had a voluntary disclosure policy which enables taxpayers who want to clean up problems that expose them to criminal prosecution to make a voluntary disclosure through the Criminal Investigation Division and to negotiate an agreement under which their problems can be settled without criminal prosecution. In recent years that policy has been formalized and much used to resolve the problems that have arisen with discovery of formerly secret accounts in Swiss and other bank secrecy countries. In 2009 the IRS announced the first Offshore Voluntary Disclosure Initiative (OVDI) under which qualified U.S. taxpayers could follow the procedure and avoid criminal prosecution and pay civil penalties that are well below what the U.S. tax authorities could, by law, otherwise seek to collect. This initiative had an expiration date, but it was succeeded by a second program in 2011 and a third program in 2012. Under these disclosures the IRS obtained information on foreign financial institutions, specific bankers, and financial advisors and other persons who aided and assisted U.S. taxpayers in maintaining undisclosed foreign accounts. This has given the CID a huge backload of work. OVDI is not available for cases involving illegal source income. Many states have similar programs.
Practical next steps
- Note the date on this article. It describes the rules as they stood then, and tax procedure changes.
- Start from the notice you actually received: the number in the top right corner and the date printed on it decide what is still open to you.
- Pull your account transcripts before deciding anything. They show what the IRS believes about your account, which is not always what the letters say.
- If a deadline is running or the amount is significant, have someone read the file before you respond.
Official sources for current verification
- IRS Criminal Investigation
- IRS Manual — Criminal Investigation Strategies
- IRS Manual — Recognizing and Developing Fraud
- IRS Criminal Investigation Voluntary Disclosure Practice
- IRS — Options for Undisclosed Foreign Financial Assets
- IRS — Streamlined Filing Compliance Procedures
Important notice
This material provides general information, not legal or tax advice. Tax outcomes depend on the facts, procedural history, applicable law, and current agency guidance. Reading this page does not create an attorney-client relationship.
