Friday, April 14, 2023

Updated DOJ Tax Voluntary Disclosure Policy (4/14/23; 4/30/23)

Caveat on 4/30/23 3:00pm: The Disclosure Policy was updated on 4/25/23. I have not had a chance to determine whether any material changes were made and will do so when I have a chance. The updated web page in HTML is here.

DOJ components, including DOJ Tax, have updated their respective corporate voluntary disclosure policies. While an attorney representing corporations having a potential federal criminal problem should familiarize themselves with appropriate component policies, I focus here on the DOJ Tax updated policy (in HTML here and pdf here). The DOJ Tax update "supplements" the Tax Division's existing policy by providing much more detail as to the requirements for the policy. For background, I include verbatim the DOJ Tax voluntary disclosure policy in CTM 4.01, here:

4.01 VOLUNTARY DISCLOSURE

4.01[1] Policy Respecting Voluntary Disclosure

 Whenever a person voluntarily discloses that he or she committed a crime before any investigation of the person’s conduct begins, that factor is considered by the Tax Division along with all other factors in the case in determining whether to pursue criminal prosecution. See generally USAM, § 9-27.220, et. seq.

If a putative criminal defendant has complied in all respects with all of the requirements of the Internal Revenue Service’s voluntary disclosure  Practice, n1  

   n1 See United States v. Knottnerus, 139 F.3d 558, 559-560 (7th Cir. 1998) (holding that prior visit by special agent disqualified defendant from voluntary disclosure program); United States v. Tenzer, 127 F.3d 222, 226-28 (2d Cir. 1997), vacated in part and remanded on other grounds, 213 F.3d 34, 40-41 (2d Cir. 2000) (taxpayer must pay or make bona fide arrangement to pay taxes and penalties owed to qualify for consideration); and United States v. Hebel, 668 F.2d 995 (8th Cir. 1982).

 A person who makes a “voluntary disclosure” does not have a legal right to avoid criminal prosecution. Whether there is or is not a voluntary disclosure is only one factor in the evaluation of a case. Even if there has been a voluntary disclosure, the Tax Division still may authorize prosecution. See United States v. Hebel, 668 F.2d 995 (8th Cir.), cert. denied, 456 U.S. 946 (1982).

I discuss certain (but not all) aspects of the Update. I provide this discussion in the order of the presentation of the Update (and not necessarily in the order of importance). The alphabetical paragraph references (e.g., ¶ A) are to the paragraphs in the policy; the numbered paragraphs are to my points and are sequential through all paragraphs:

¶ A  Introduction

1. Entities within the scope of the policy. "Footnote 2 says, "The terms corporation and company apply to all types of business organizations, including but not limited to partnerships, government entities, and unincorporated associations. See Justice Manual ("JM") § 9-28.200. This policy does not, however, apply to sole proprietorships.""

2. What is the role of the IRS Voluntary Disclosure Practice? The policy states: "Any voluntary self-disclosure related to matters arising under the internal revenue laws must be made to the Tax Division. Division. See JM § 6-4.010; 28 C.F.R. § 0.70.”  (Emphasis supplied.) The cited references do not state that voluntary disclosure must be made to DOJ Tax. Further, the DOJ CTM provision (quoted above) does not require voluntary disclosure only to DOJ Tax and says that voluntary disclosure to the IRS under its practices will be considered. My inference is that this aspect of the DOJ Tax policy will continue. Nevertheless, a "belt and suspenders" approach suggests voluntary disclosure to DOJ Tax and IRS and let them sort out who takes the lead in confirming compliance.

2. Disclosures where government is otherwise aware. "Companies are encouraged to make disclosures to the Tax Division even if they believe the government may already be aware of the misconduct." The full benefits may not be available, but some can be.

3 Substantial compliance possibility. "Prompt self-disclosures will be considered favorably, even if they do not satisfy all the criteria for a voluntary self-disclosure as set forth below."

 ¶ B. Voluntary Self-Disclosure

This portion of the policy update sets details of the conditions in much the way the IRS voluntary disclosure practice in the IRM sets forth the conditions. DOJ's conditions are more detailed. These conditions are so important that I copy and paste them verbatim (with some emphases in boldface provided by me without further discussion where I believe readers of this blog will get the point):

The Tax Division will determine, at its sole discretion, whether a disclosure constitutes a voluntary self-disclosure based on a careful, case-by-case assessment. To be a voluntary self-disclosure under this policy, the following criteria must be met:

1 Voluntary: The disclosure of criminal misconduct must be voluntary. A disclosure is not voluntary where there is a preexisting obligation to disclose, such as pursuant to regulation, contract, or a prior Department resolution (e.g., non-prosecution agreement or deferred prosecution agreement).

2 Timing of the Disclosure: The voluntary disclosure must be made to the Tax Division:

◦ “prior to an imminent threat of disclosure or government investigation,” U.S. Sentencing Guidelines (“U.S.S.G.”) § 8C2.5(g)(1);

◦ prior to the criminal misconduct being publicly disclosed or otherwise known to the government (except in cases where prior disclosure was made to the Internal Revenue Service (“IRS”) or other appropriate regulatory authority, in which case disclosure, absent good cause shown, must be made to the Tax Division within 15 days of the prior disclosure); and

◦ within a reasonably prompt time after the company becomes aware of the criminal misconduct, with the burden being on the company to demonstrate timeliness.

3 Substance of the Initial Disclosure and Accompanying Actions: For a disclosure to be deemed a voluntary self-disclosure under this policy, the disclosure must include all relevant facts concerning the misconduct that are known to the company at the time of the disclosure. The Tax Division recognizes that a company disclosing soon after becoming aware of the misconduct may not know all of the relevant facts at the time of the voluntary self-disclosure. Therefore, a company should make clear that its disclosure is based upon a preliminary investigation or assessment of information, but it should nonetheless provide a fulsome disclosure of the relevant facts known to it at the time. In addition:

Preservation of Documents: The company must timely preserve, collect, and produce relevant documents and/or information, and provide timely factual updates.

Cooperation and Remediation: To receive full credit for a voluntary disclosure, the company must provide full cooperation and timely and appropriate remediation, as described in Parts C and D of this policy.

Disclosure of Returns and Return Information: A voluntary disclosure to the Tax Division must be accompanied by a written consent by the company, pursuant to 26 U.S.C. § 6103(c), authorizing the IRS to disclose to the Tax Division all relevant returns and return information. The consent must also authorize that the Tax Division may make use of the information to the extent otherwise permitted under § 6103(h), including applicable regulations. The Tax Division may consult with and obtain the assistance of the IRS in evaluating and investigating the voluntary self-disclosure.

Method of Disclosure: A company interested in making a voluntary self-disclosure to the Tax Division should submit a request to CorpTax.Disclosures@usdoj.gov.

1. Query, since the policy applies at DOJ Tax's sole discretion, is there a possible attack that can be made to denial based on abuse of discretion? I doubt it, but one faced with the actuality of denial might consider it.

2. Is there some possibility that, if a joint disclosure to DOJ Tax and the IRS, DOJ Tax may deny the voluntary disclosure and IRS grant it? I doubt the two entities would conflict, but what if they did? Of course, if DOJ Tax grants voluntary disclosure but IRS disagrees and recommends prosecution, it does not matter what the IRS recommends.

3. Should a joint disclosure to DOJ Tax and the IRS meet the requirements of both policies/practices?

¶  C. Benefits of Voluntary Self-Disclosure

1. These are new but consistent with other DOJ component voluntary disclosure policies.

2. Under the policy, "the Tax Division may choose not to impose a criminal penalty." Of course, DOJ Tax does not impose criminal penalties; courts do that. I suppose that fairly read, this means that DOJ Tax may choose not to seek indictment.

3. The policy offers to request a reduction in the Guidelines' recommended fine ranges based upon meeting the policy or key aspects of the policy including cooperation. I am not sure that fine ranges are that material to corporations.

4. Logically, there is no agreement as to sentencing range because corporations are not incarcerated.

¶   D. Cooperation

The policy provides many conditions to meet the cooperation requirement. 

¶ E. Timely and Appropriate Remediation

 No agreement as to Civil Penalties.

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