You might have a valid reason as to why you have not fully come into compliance when it comes to your tax returns. Before you decide to achieve compliance, you should ask to speak with a Washington DC reasonable cause disclosure lawyer. The guidance and knowledge from an offshore disclosure attorney could prove invaluable when trying to prevent penalties.
Reasonable Cause is a type of disclosure in which the taxpayer has understandable reasons for their non-compliance. The taxpayer made a good-faith error when they did something improperly or failed to follow the proper procedures.
In order to make a reasonable cause disclosure, the IRS cannot have already begun a civil examination or criminal investigation into the taxpayer, and the IRS will look at all of the facts and circumstances to make sure that the taxpayer was acting reasonably. Internal Revenue Manual Code Section 126.96.36.199.2.1 addresses the reasonable cause standards.
Reasonable cause is granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations, but was nevertheless unable to comply with those obligations. This is a high-risk, high-reward option because they may be able to get by with no penalties; but if the IRS determines they lacked reasonable cause, the penalties could still be implemented.
The IRS examines what happened, why it happened, and what prevented the taxpayer from complying. And once the facts and circumstance changed, what did they do to come into compliance to correct their errors? Reasonable cause does not exist if the taxpayer learned at a later time that they were non-compliant but did not take any affirmative action to resolve it. It is wise to first consult with a Washington DC attorney about reasonable cause before making any disclosure.
Reasonable cause is slightly different from the typical streamlined disclosure, delinquent FBAR submission procedure, or a delinquent international information return procedure. Someone may want to file a reasonable cause disclosure if their mistakes were relatively small and based upon good faith. This could potentially help them avoid penalties. If there are large accounts that were not disclosed but the unreported income is small, the taxpayer may want to consider doing a reasonable cause disclosure as a way to potentially save the penalties that would have been assessed on another program.
An IRS audit is defined under Internal Revenue Code Section 7602, and is an examination of books, records, and witnesses related to a taxpayer’s tax profile. Once a taxpayer hits a certain amount of income on the individual side, they are required to file tax returns and pay their taxes in a timely fashion. On top of that, they have to keep books and records that support the positions on their tax returns in the event that the IRS needs to audit them.
If the IRS disagrees with the reasonable cause disclosure, then the taxpayer is open to all of the civil penalties that might be assessed to them. Those could be very large penalties depending upon the scope of the compliance. The taxpayer could decide to appeal the decision if they disagree with it, which would be done through a written request.
Generally speaking, a person would need to file amended tax returns, or additional new tax returns or forms that were not filed originally, along with a written statement explaining why it was reasonable for them to have made that mistake. If the reasonable cause is accepted, there are no penalties.
A person who is unable to afford the potential penalties can still make a reasonable cause disclosure but they should be aware that they are opening themselves up to a tax bill and large penalties if the IRS disagrees. If they cannot afford to take it to a conclusion, they may want to reconsider whether they even want to make a disclosure.
A local reasonable cause disclosure attorney will try to reduce and, ideally, remove the risk for a criminal investigation and prosecution. They could also help minimize the potential for additional taxes and related penalties to be assessed. By having a professional involved, the taxpayer could be presented in the most favorable light to the IRS and be put in the best position to quickly, effectively, and efficiently get out of this period of non-compliance with the least amount of risk for tax penalties, interest, civil penalties, and criminal penalties.
Reasonable cause disclosure is only recommended in rare situations because the IRS has a lot of discretion when they are reading the reasonable cause statement to determine whether to grant the relief. Therefore, it must be a situation where the facts are clear enough that approval is likely, and that the penalties involved in going through another program are so large that attempting it through this method would be more beneficial. A Washington DC reasonable cause disclosure lawyer could help weigh the benefits and drawbacks of this this decision. Call today to learn more.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Fairfax, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.