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CFO Magazine

Voluntary Disclosure to the IRS: A Viable Option

The IRS deals leniently with taxpayers who volunteer information against themselves about unpaid taxes. However, it's crucial to know exactly when and how to make such disclosures.

March 2008
by Stephen Huggard/Journal of Accountancy

Once in a while, a client with a heavy heart visits a CPA. The client has not been paying what he or she owes Uncle Sam and wants (or needs) to come clean, but has no idea how to do so. The good news is that there are ways you can help your clients in this predicament.

For more than 55 years, the IRS has had a policy that allows such taxpayers to come forward and escape criminal prosecution in exchange for their truthfulness and cooperation. While the Service's forbearance under this voluntary disclosure policy is not ironclad or available under all circumstances, it can be determinative. "A true voluntary disclosure is usually the deciding factor in decisions about prosecution," said Shirley D. Peterson, former IRS commissioner, in a speech to the AICPA Tax Division.

The bad news is that inexpert advice can buy the client a lot of trouble, perhaps even a stay in a federal penitentiary. CPA tax practitioners who learn of an error in a taxpayer's return or the taxpayer's failure to file a required return should advise the taxpayer of the error and measures to be taken. In keeping with AICPA Statement on Standards for Tax Services (SSTS) no. 6, if it appears the taxpayer could be charged with fraud or other criminal misconduct, the taxpayer should be advised to consult legal counsel.

This article has been excerpted from the Journal of Accountancy. Read the full article here.