Tax News
New Details on the Upcoming Voluntary Disclosure Program
January 28, 2011
Administrative Actions
I posted not long ago on this blog that a new voluntary disclosure program is in the cards. It appears that the new program will be officially announced very soon.  Few days ago Kristen A. Parillo had a piece on TNT reporting some of the details of this new program. The views expressed were mainly those of Leslie DeMarco, special agent in charge of the CI's Los Angeles field office.  The article was titled "IRS Official Previews Process for New Offshore Disclosure Program" and could be found on TNT's website, 2011 TNT 18-2.

The article covers a lot of points but to me the most interesting thing was that the IRS has decided to shift the preliminary screening process to Philadelphia instead of the local criminal investigation division (CID).  So it appears that now when the taxpayer contacts the IRS, things will be handled centrally instead of through the local CID. I don't know if that's a good thing.  The IRS is saying that it is trying to make the process more efficient and bring more people into the program, but I am not sure how having Philly handle the process helps with bringing more taxpayers in.  As far as voluntary disclosure goes, obviously the crucial question for taxpayers is twofold: (1) should I go in, say vs. a quiet disclosure, and (2) how much cash will this cost me?  The other question is, well, what happens if I am not accepted in the program?  The pre-check could be dicey.  To qualify for voluntary disclosure, the taxpayer must not be already under investigation. Well, thing is that neither the IRS nor the taxpayer could be absolutely sure whether the taxpayer is under investigation unless the IRS does the pre-check. Well, these day, before the IRS does the pre-check, the taxpayer must give information such as name, address etc.  If it comes out that the taxpayer is under investigation, well, the IRS has the taxpayer’s information and the taxpayer can't get in the program.  That's not an enviable position to be in.  It seems to me that moving this process from CID to Philly leaves the taxpayer a bit out of the loop.  While the local CID voluntary disclosure coordinator is not a chit-chat buddy to a taxpayer under investigation, generally they are open to discussions and possibly a meeting.  All of this may be inconsequential, but at least to me, it does not seem too big of a positive.

How does all of this apply to investment funds?  Well, it boils down to investor's obligation to file FBARs. While mutual fund investors were clearly covered, the issue is a bit hairy when it comes to private equity, venture capital and hedge fund investors.  Absent new guidance to the contrary, as of now, non-mutual fund investors were not required to file FBARs for pre-2010 years but it appears that will be required to do so for 2010 and thereafter (issue is reserved in the proposed FBAR regulations but Fn13 provides that FinCEN continues to study it; also Notice 2010-23 provides relief for these types of funds only until 2010). So it seems that this voluntary disclosure program will be affecting private equity, hedge fund and venture capital investors who fail to file FBARs for 2010 and thereafter.  Hopefully, after the huge publicity of the UBS case and the related criminal and civil penalty exposure, there won't be too many investors pondering the merits of going in the program but still...
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Tags: Special Offshore Voluntary Disclosure, SVDP, venture capital pfic, Voluntary Disclosure