The Internal Revenue Service (IRS) enforces the tax code in part by reviewing individual returns, performing audits and pursuing collection activity when necessary. The IRS even has the authority to recommend criminal proceedings against those who have engaged in tax fraud or tax evasion.
Sometimes, those who have previously made questionable choices on income tax returns or those who have not disclosed assets to the IRS may make voluntary disclosures. They inform the IRS of the situation and accept the financial penalties that come as a result of their previous actions. Why do people make voluntary disclosures?
The consequences are often less if you proactively cooperate
Perhaps you long worked with an accountant who didn’t care about how much risk questionable write-off practices might create for you or your business. On the other hand, perhaps you made the choice yourself to not disclose assets held in another country or income that you thought the IRS would never find out about.
However, perhaps because other parties have faced prosecution for similar actions, you may now regret those decisions or realize that you made a mistake. Those who believe that their tax mistakes in the past could lead to a criminal prosecution can voluntarily disclose those issues to the IRS to limit the enforcement actions they face.
Provided that you are transparent when cooperating with the IRS there is not already an investigation open or prosecution pending, voluntary disclosure could help you stave off the worst possible consequences. Understanding different approaches that can help those accused of tax crimes can lead to a better resolution to accusations of text fraud or evasion.