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How to Qualify for the IRS Tax Evasion Amnesty Program

How to Qualify for the IRS Tax Evasion Amnesty Program

Paying taxes is never fun, but evading taxes can lead to serious consequences like fines, penalties, and even jail time. However, the IRS does offer amnesty programs that provide a path to compliance for those who have failed to pay taxes in the past. So if you’ve made some mistakes with your taxes, don’t panic! Here’s what you need to know about qualifying for the IRS tax evasion amnesty program and getting back on the right track.

What is the IRS Tax Amnesty Program?

The IRS tax amnesty program allows people who have evaded taxes in the past to voluntarily disclose this information and become compliant without facing criminal prosecution. There are a few different amnesty programs available:

• The Offshore Voluntary Disclosure Program (OVDP) – for those with undisclosed foreign income or assets
• The Streamlined Filing Compliance Procedures – for those who have failed to report foreign income/assets and meet other requirements
• The Delinquent FBAR Submission Procedures – for those who have failed to file Foreign Bank Account Reports (FBARs)
• The Delinquent International Information Return Submission Procedures – for those who have failed to file other international information returns

The main benefit of these programs is avoiding criminal prosecution. The IRS promises not to recommend criminal charges for those who truthfully disclose past non-compliance through these amnesty programs. However, you will generally still have to pay back taxes, interest, and penalties. The penalties are usually reduced compared to if the IRS discovered the tax evasion on their own.

Who Qualifies for the IRS Amnesty Programs?

In general, the amnesty programs are open to any U.S. taxpayer who has underreported income or failed to file required tax forms in the past. However, each program has specific eligibility requirements:

Offshore Voluntary Disclosure Program (OVDP)

The OVDP is for those with undisclosed foreign income or assets. You may qualify if you:

• Have unreported foreign income or financial accounts/assets
• Have not yet been contacted by the IRS about these accounts
• Are not currently under IRS audit or criminal investigation

The OVDP has stricter eligibility requirements than other amnesty programs, but also offers the greatest protection from criminal prosecution for serious tax evasion.

Streamlined Filing Compliance Procedures

The Streamlined Filing program is designed for those with simpler tax issues. You may qualify if you:

• Have failed to report foreign income/assets and file related forms (like the FBAR)
• Have unpaid taxes of $1,500 or less per year
• Did not act willfully or intentionally to evade taxes
• Have low risk of criminal prosecution

The Streamlined Filing program does not provide as much protection as the OVDP, but has lower penalties and less stringent eligibility.

Delinquent FBAR Submission Procedures

This program is for those who failed to file the Foreign Bank Account Report (FBAR) on foreign accounts. You may qualify if you:

• Simply failed to file FBARs, with no additional tax non-compliance
• Have not yet been contacted by the IRS about delinquent FBARs

This program only addresses the failure to file FBARs. If you also failed to report related foreign income, you may need to use the OVDP or Streamlined Filing program.

Delinquent International Information Return Submission Procedures

This program is for failure to file other international information returns, like Form 5471 on foreign corporations or Form 3520 on foreign gifts/inheritances. You may qualify if you:

• Simply failed to file these information returns
• Have no unpaid tax associated with these filings
• Have not yet been contacted by the IRS about the delinquent returns

Like the FBAR program, this one only addresses missing information returns. If you also failed to report related income, you may need a different amnesty program.

How to Apply for IRS Amnesty Programs

If you determine you are eligible for one of the amnesty programs, here are the steps to apply:

1. Hire an experienced tax attorney or CPA to represent you. These programs are complex, so professional help is highly recommended.
2. Work with your representative to prepare amended returns and back tax forms for the last 8 years, as required by the OVDP.
3. Calculate the total back taxes, interest, and penalties you will owe. Penalties can be high but are usually reduced in amnesty programs.
4. Complete the voluntary disclosure letter, providing detailed information on any tax non-compliance.
5. Submit the voluntary disclosure letter and amended returns to the IRS Criminal Investigation Voluntary Disclosure Coordinator.
6. After review, the IRS will issue a closing agreement detailing your liability. Sign and pay this to finalize the process.

It’s critical to provide complete and accurate information throughout the application process. Any omissions or lies could void eligibility for amnesty.

What Happens After Getting IRS Amnesty?

Once you’ve completed an amnesty program, you will likely feel a huge sense of relief. However, your work isn’t done yet. Here’s what to expect:

• You will have to pay all back taxes, interest, and reduced penalties as outlined in your closing agreement.
• You will need to remain tax compliant going forward. Don’t miss future filing deadlines or repeat past mistakes.
• Expect the IRS to closely review your returns for at least the next few years.
• Maintain detailed records of all foreign income/assets in case of an audit.
• Continue filing FBARs and other international information returns annually.

While the amnesty process may be time-consuming and expensive, thousands of U.S. taxpayers have used these programs to correct past mistakes. As long as you remain compliant moving forward, you can put this chapter behind you.

Mistakes to Avoid with IRS Amnesty Programs

It’s understandable to feel anxious navigating tax amnesty. To increase your chances of success, be sure to avoid these common mistakes:

• Don’t try hiding money or assets from the IRS. Full disclosure is required.
• Don’t miss deadlines for responses or payments. This can invalidate your amnesty agreement.
• Don’t underestimate your liability. Work closely with your representative to calculate accurate amounts.
• Don’t assume penalties will be waived completely. Reduced penalties still apply.
• Don’t fail to file FBARs and information returns going forward. You must maintain compliance.

It can be tempting to downplay past mistakes when applying for amnesty, but honesty really is the best policy. Attempting to hide anything almost guarantees rejection from the programs and may even increase penalties.

Getting Professional Help with IRS Amnesty

Because the various amnesty programs have complex rules and procedures, it’s highly advisable to work with a tax attorney or CPA when applying. A tax pro can:

• Determine which program you qualify for
• Handle all correspondence and filings with the IRS
• Help calculate your total back tax liability accurately
• Negotiate to reduce penalties as much as possible
• Increase your chances of a successful amnesty application

Yes, hiring representation adds to the cost, but it’s a smart investment to avoid further fines or even criminal prosecution. Reputable tax pros have worked extensively with these amnesty programs and can guide you through the process.

The Bottom Line

If you’ve made mistakes in reporting your worldwide income, take a deep breath. The IRS amnesty programs offer a way to correct past errors without criminal charges or maximum penalties. But you have to take action and be fully transparent with the IRS. Hire a skilled tax attorney or CPA, gather your records, and be ready to pay back taxes, interest, and some penalties. It won’t be cheap or easy, but coming clean through the amnesty program is far better than the alternatives if your tax evasion is discovered. Don’t delay—consult with a tax pro today to discuss your situation and start getting right with the IRS!