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IRS Voluntary Disclosure Guidelines Revised to Include Cryptocurrency

The Internal Revenue Service stated today that the Preclearance Request and Application for Voluntary Disclosure Practices has been amended

. The Internal Revenue Service’s Voluntary Disclosure Program has been in place for many years and is the most effective method for taxpayers who may be subject to criminal prosecution for tax compliance issues to come forward. According to the IRS, “the modifications are based on feedback from practitioners and stakeholders, and they take into consideration trends in the types of financial assets that taxpayers own.” Private tax practitioners applauded the revised application’s increased transparency into the types of penalties that would be assessed, but they cautioned that some of the new requirements to disclose information, particularly the disclosures that must be made regarding cryptocurrency, necessitated careful consideration.

Who Disclos?

It permits those who are frightened of being prosecuted to submit tax return problems or omissions before the IRS finds them. A taxpayer may be unable to use the Voluntary Disclosure Practice during an audit. To participate in the Voluntary Disclosure Practice is onerous and has severe repercussions.

Use this form and follow the directions carefully to prevent IRS enforcement action, says Doug O’Donnell, Deputy Commissioner of Services and Enforcement. A tax expert should review the guidelines and the modified form. People should consult with tax or legal professionals when selecting which option is best. (I strongly encourage this.)

The method and paperwork have changed.

Megan Brackney, a tax lawyer in New York, praised the new form and guidelines for clarifying any fines. We wanted clarification on the penalty framework, as well as amended returns for income tax and foreign assets. To those who use voluntary disclosure to catch up on years of non-filing and have other compliance issues such as inheritance, gift, and employment taxes, the penalty framework is quite welcome. This is comparable to the IRS’s approach in income tax cases, Brackney said.

Clarifies penalties in inheritance, gift and employment tax issues. As predicted, more voluntary disclosures will occur. The preclearance process took many taxpayers over a year, and some concerns were not resolved for years. Hopefully, the IRS will quickly address these issues, benefiting both the IRS and taxpayers.” –

What if I have unreported cryptocurrency?

Taxpayers should consider twice before reporting cryptocurrency, says John Colvin of Colvin + Hallett. Tax evaders will have to submit more information about their bitcoin assets upfront if they want to avoid prosecution, according to Colvin. Taxpayers must not only report non-compliant cryptocurrency holdings, but also explain whether they used “mixers” or “tumblers” and why they did so. Because unlawful income is not eligible for voluntary disclosure, professionals must carefully assess whether the mixer or tumbler was used to conceal illegal income.

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Leo K. Nelson

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