If you plan on coming into compliance for previous years of unfiled tax returns, you can choose to go through the streamlined or the voluntary disclosure programs; or, as some taxpayers choose to do, engage in a quiet disclosure. Unlike other disclosure programs set up by the IRS, quiet disclosures do not offer reduced civil penalties or criminal protection. Because of this risk, it is recommended that you speak to an attorney before considering quiet disclosure for unfiled tax returns in Washington DC.
A quiet disclosure refers to a filing of original or amended tax returns, and potentially international information returns, without going through the voluntary disclosure program or a streamlined disclosure program.
This is called quiet disclosure because the taxpayer is not alerting the IRS of any past mistakes, they are merely correcting their taxes. If a taxpayer lets their past problems go without correction and then they file their returns properly from the current tax period going forward, that is also sometimes referred to as quiet disclosure.
A quiet disclosure is a gamble because there are risks when someone files back tax returns without going through one of the available programs. If they file back a large number of international forms without going through the streamlined program, that sets up the taxpayer for potentially tens of thousands of dollars of civil penalties associated with those late filed forms. They might even be assessed automatically against the taxpayer who filed late.
If someone has criminal exposure and files numerous late returns in order to come into compliance, that could be used as a roadmap for the IRS to bring criminal charges. This risk is reduced if they were to go through the voluntary fault disclosure program.
A Washington DC taxpayer might consider a quiet disclosure for unfiled taxes if they are not eligible for one of the official programs for whatever reason. Some others may just want to start filing for the current year onward and hope that the IRS does not look into previous periods, which is not guaranteed.
There may be some limited situations where a quiet disclosure makes sense because the penalty exposure is so small – i.e., small foreign accounts or only a small amount of unreported income. A common example is if a taxpayer forgets to report the interest made on their bank account. This is usually small enough that there is no need to go through one of the disclosure programs.
A disadvantage for the quiet disclosure in Washington DC is that penalties could end up being much larger than other disclosure options, and it does not offer the finality for prior years to the look-back period. The benefit of the voluntary disclosure or the streamlined disclosures is that any non-compliance in prior years is forgiven by the IRS.
If a taxpayer has unreported income and a tax bill with these quiet disclosures, that would prevent them from being eligible for delinquent FBAR submission procedures. When someone files a delinquent FBAR, the penalties start at $10,000 per year. Thus, having to file a prior year’s FBAR could complicate a quiet disclosure.
Someone may want to speak to a tax attorney if they have foreign accounts with unreported income, because it is wise to review the penalty exposure of doing nothing as compared to entering into the streamline program or the voluntary disclosure program. Depending upon what program is available, there will be a different amount of penalties. If the non-compliance is small enough, they may want to consider a quiet disclosure. There are no special forms or procedures for quiet disclosure, but a lawyer could inform someone of what risk they have and whether an official program is the better option.
While everyone needs to pay their taxes on time because they are required to under the law, one could still file these returns without sending a payment at that time if they are unable to pay the tax. Quiet disclosure for unfiled tax returns in Washington DC might put you in a sensitive situation, so please contact legal counsel before you make this decision.
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, Vienna, 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.