IRS Return Information Disclosures to Other Federal or State Authorities for Information Obtained in Voluntary Disclosure Processing and other Agency Activity (7/18/20)

I previously blogged on the new Form 14457, Voluntary Disclosure Practice Preclearance Request and Application.  See Revised IRS Form 14457 for Voluntary Disclosure Preclearance (Federal Tax Crimes Blog 5/29/20; 7/17/20), here; for prior discussion, see New Form 14457, Voluntary Disclosure Practice Preclearance Request and Application (Federal Tax Crimes Blog 4/16/19), here; and New IRS Voluntary Disclosure Procedures and Civil Resolution Framework (Federal Tax Crimes Blog 11/29/18; 11/30/18), here.

The Form grows out of the offshore account voluntary disclosure initiative (variously initialized OVDP and OVDI), but now covers the entire IRS voluntary disclosure practice to filing of the Form to seek preclearance to the practice.  The IRS voluntary disclosure practice is described on a web page titled IRS Criminal Investigation Voluntary Disclosure Practice, here (which also includes links to historical information).

I previously discussed the revised form in the link above and added to that discussion comments from a July 14, 2020 an ABA Tax Section Civil and Criminal Penalties Committee virtual meeting in lieu of the in-person meeting at the annual May Meeting.  In that discussion, I noted the importance of a full and complete narrative disclosures on the Form Part II, Question 7.  That narrative disclosures “must include a thorough discussion of all Title 26 and Title 31 willful failures to report income, pay tax, and submit all required information and reports.”   The participants emphasized the requirement for disclosure only includes Title 26 and Title 31 crimes (as to the latter, those crimes under Title where the IRS has been delegated enforcement responsibilities, such as FBAR and dual IRS and FINCen Forms 8300, titled Report of Cash Payments Over $10,000 Received in a Trade or Business).

One issue I indicated I would discuss later was the discussion of whether information disclosed on the Form or in the voluntary disclosure process would be available to other federal or state law enforcement agencies who enforce crimes outside Title 26 and 31.  Of course, if the unreported income is illegal income, the taxpayer is disqualified from joining the voluntary disclosure practice.  But often in the milieu involving a taxpayer’s tax or Title 31 noncompliance, there will be other illegal activity in which other nontax federal or state agencies may have an interest.  Need taxpayers trying to join the voluntary disclosure practice be concerned that the disclosures the taxpayers make in the practice (including the narrative on Part II, Question 7 of Form 14457) or any other information the IRS develops other than submitted by the taxpayer will be available to those other federal or state law enforcement agencies and potentially used for criminal prosecution of the taxpayer with no protection offered by the IRS voluntary disclosure practice?