New Form 14457, Voluntary Disclosure Practice Preclearance Request and Application (4/16/19)

I have previously written on the IRS's revised Voluntary Disclosure Practice announced in November 2019.  See New IRS Voluntary Disclosure Procedures and Civil Resolution Framework (Federal Tax Crimes Blog 11/29/18; 11/30/18), here.  The announcement anticipated a revised Form 14457 (previously used for Offshore Voluntary Disclosure Procedure, OVDP) to be used for the general Voluntary Disclosure Practice.

The form is now out.  See Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, here.  (The Form is a fillable pdf that may not show in some browsers and may need to be downloaded to actually view and fill out the form.)

The following are my quick observations.

1.  The Form consists of two Parts.  Part I is submitted as the request.  Part II is submitted after preclearance is granted.  The Form is for both domestic and offshore issues.

2.  General comments.  The disclosures required are quite robust and are of the type that can be databased with appropriate fields that will likely permit computer analytics in the process of identifying which disclosures may need extra attention by the IRS and permit some cross-checking for identified persons and entities.

3.  Part I Disclosures (L. refers to the numbered items, e.g.,L. 3):

a.  L. 3 asks for "Disclosure special features" with check boxes related to common types of noncompliance but with an  "Other Issues" check box that, if checked, need to provide a textual description.

b. LLs. 4-7 asks for detailed identity information for the taxpayer making the request plus any entities for whom the request is being made.

c.  L. 8 asks "Do you believe that the IRS has obtained information concerning your tax liability."  Since a taxpayer is not qualified for VDP if the IRS is already on the trail, this question is designed to flush out the taxpayer's knowledge about that early on.

d.  L. 9 asks "Disclose if you, your spouse or any related entities are currently under audit or criminal investigation by the Internal Revenue Service or any other law enforcement authority and if any income is sourced from an illegal activity."  This is a pretty broad question but seems to apply only to the spouse (not siblings, parents or children or others) and "related entities."  Related entities may need some definition, but certainly entities in which the taxpayer is title or beneficial owner would be included, although the quantum of the title or beneficial ownership relative to others is not stated.  Interestingly, the question as asked does not include related individuals (other than spouse), such as partners who, under prior iterations of the VDP might be a disqualified.

e.  L. 10 asks for a list of "ALL noncompliant financial accounts you owned or controlled or were the beneficial owner of, either directly or indirectly."  The period covered is the six year disclosure period.

f.  Interestingly, the taxpayer is not required on Part I to quantify the tax amounts involved.

4.  Part II Disclosures (to be completed only after preclearance based on Part I):

a.  L. 3 provides check boxes similar to Q. 3 of Part I.

b.  L. 4 asks if the taxpayer has taken a position that he or she was a bona fide resident of a U.S. territory (e.g., American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands) or did you file an income tax return with a U.S. territory?" and explain if yes.

c.  Ls. 5&6 ask about the quantum of unreported income and graduated brackets (e.g., 0-$50,000, $50,000 to $100,000, etc.) and for the high aggregated balance in offshore accounts.

d.  L. 7 for Offshore Issues only asks about "anyone including a foreign government or a foreign financial institution" advised the taxpayer "that your offshore account records, which are the subject of this voluntary disclosure, were susceptible to being turned over to the U.S. Government pursuant to an official request?"  If yes, then the taxpayer must disclose whether anyone submitted documents in opposition to disclosure and notified the Attorney general as required by 18 USC §3506.

e.  L. 8 requires, for the disclosure period, a list of ALL entities you owned or controlled or were the beneficial owner of, either directly or indirectly for which you reported noncompliant financial accounts in the Part I preclearance request.