IRS Disclosures: Understanding When, Why, and How to Disclose Tax Violations to the IRS

With the IRS ramping up its enforcement efforts after receiving increased funding under the Inflation Reduction Act, now is the time for U.S. taxpayers to make sure they are up to date on their filing and payment obligations. For those who are not up to date, avoiding an audit or investigation will most likely involve making some form of IRS disclosure. Taxpayers who work with an experienced New Jersey tax attorney to make proactive disclosures can avoid facing IRS scrutiny—and, in doing so, they can mitigate their liability exposure.

When to Consider an IRS Disclosure

When is the right time to consider disclosing a tax violation to the IRS? Generally speaking, the answer is “As soon as possible.” This is equally true for taxpayers who have recently discovered inadvertent filing or payment errors and for those who have intentionally underreported or underpaid their federal tax obligations. While the IRS will look back up to six years when auditing taxpayers’ returns in most cases, there is no statute of limitations for civil tax fraud and tax evasion enforcement under federal law.

In other words, federal tax law violations don’t simply disappear. To avoid the risk of facing an audit or investigation, taxpayers need to resolve their tax law violations proactively, which involves making an appropriate disclosure to the IRS.

Why to Consider an IRS Disclosure

Along with avoiding the risk of facing an audit or investigation, the other key reason to consider an IRS disclosure is that it provides the opportunity to avoid unnecessary interest and penalties. Once a taxpayer violates the Internal Revenue Code, interest and penalties begin to accrue immediately, and they continue to accrue as time goes on (subject to statutory maximums in some cases). As a result, the longer a taxpayer waits to resolve a federal tax controversy, the more the taxpayer will owe.

Additionally, regardless of whether a filing or payment violation was intentional, knowingly failing to remedy the violation can significantly increase the risks involved. If the IRS opens an audit or investigation, this will further limit the options that are available—making it even more difficult to avoid unnecessary consequences.  

How to Disclose Tax Violations to the IRS

Let’s say you need to proactively resolve a federal tax controversy. How should you disclose your filing or payment violation to the IRS? Some examples of potential options include:

• Disclosing a violation in connection with a request for penalty relief
• Disclosing a violation in connection with a request for another form of relief (i.e., a settlement agreement or offer in compromise)
• Filing an amended or delinquent return
• Submitting a streamlined filing
• Submitting a voluntary disclosure

When you speak with an experienced New Jersey tax attorney, your attorney will help you carefully evaluate the options you have available based on your specific circumstances. Then, based on this assessment, you can make an informed decision about how best to proceed.

Schedule a Call with New Jersey Tax Attorney Kevin E. Thorn

If you need to know about your options for resolving a filing or payment deficiency with the IRS, we invite you to get in touch. To schedule a call with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or request an appointment online today.