1. Regarding quiet disclosures:
Another beneficial aspect of the OVDP addresses the once-questionable "quiet" submissions, which were generally discouraged in the 2009 and 2011 programs. n11 In its frequently asked questions, the 2012 program clarifies that submissions under the IRS voluntary disclosure "practice" may still constitute valid voluntary disclosures as far as resolving criminal tax exposure but does not guarantee that criminal treatment will be avoided. The OVDP also cautions that those submissions will not be eligible for the certainty of the OVDP's penalty framework. n12 This good news raises the question of when the noncompliant client should pursue remedial relief under the IRS voluntary disclosure "practice" instead of filing under the OVDP.
n11 See FAQs 15 and 16 of the 2012 OVDP and 2011 offshore voluntary disclosure initiative, as well as FAQs 10 and 49 of the 2009 OVDP.
* * * *
Submitting a practice filing (versus entering the formal program) can turn into a nightmare for all involved if the practitioner has been given incorrect information, misinterprets the law as applicable to the facts, or does not have a complete file of what actually occurred regarding the noncompliant offshore activities. Omitting a single offshore account from the disclosure package could not only cause the practice submission to be rejected during the assumed examination process, but depending on the facts, could also lead to a criminal investigation with a follow-on criminal referral to the DOJ, as well as expose the taxpayer to substantially higher taxes and penalties. Although having an incomplete file or other glitch in the context of an OVDP case filing does not insulate the filing taxpayer from criminal or increased civil exposure, in the context of a "defective" practice filing, the IRS may be less forgiving. And as a practical matter, some practitioners who advise clients to pursue the practice alternative incorrectly believe that merely filing amended tax returns and late FBARs will be sufficient and that such a filing requires less critical thinking than a submission under the OVDP. This is not so.2. Rejection after admission:
It seems that the IRS now reserves the unilateral right to decline any taxpayer based on information that it might later receive. This shift is unwarranted and smacks of a bait and switch. Perhaps more troublesome is a potential case in which the IRS, after the taxpayer comes in, initiates an examination the week before the taxpayer signs Form 906. Would that justify a declination? According to informal comments made by IRS and DOJ officials, one example of when a taxpayer may be declined from the OVDP after receiving a pre-clearance is when the DOJ possessed information before the pre-clearance was issued but shared the information with the IRS only after either pre-clearance was issued or after the clearance letter was issued in reply to the taxpayer submitting the OVDL (but before a closing agreement was completed).