Carolyn Schenck Comments on Voluntary Disclosure Program in Tax Notes

Some criminal tax defense lawyers fret that the IRS’s proposal reinforcing the full payment condition of its voluntary disclosure program could create inequity by allowing the well-off to pay their way out of tax charges.

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In response to the concerns about the full pay requirement, former IRS National Fraud Counsel Carolyn Schenck, now with Caplin & Drysdale, reiterated her prior stance: The voluntary disclosure program has always required taxpayers to fully pay the tax deficiencies and penalties imposed — that is a policy decision by the IRS.

Regarding the argument over whether the full pay requirement imposes a class system, Schenck noted that the IRS built the program with serious criminal tax behavior in mind and not mistakes or small omissions from tax returns.

The voluntary disclosure program has been a critical tool for returning taxpayers to compliance but one that poses a tension between the costs and penalties it imposes and the volume of disclosures the tax community and IRS would like to see, Schenck said.. . .

The challenge of dealing with the uncertainty of the proposed FBAR penalty could be compounded by having to pay in full so quickly under the proposal, Ziering said. And Schenck noted that if the program ends up allowing an examiner to pick between willful and nonwillful FBAR penalties, that could extend the process for taxpayers who get examined as part of it.

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Schenck sees the possibility of the proposed changes reducing the administrative costs of the voluntary disclosure program by streamlining the review process and making it more like a certification. Also, if revenue agents aren’t automatically assigned to every voluntary disclosure case, those resources could instead be applied to other audit work, she said.

Moving from one 75 percent fraud penalty to 20 percent accuracy penalties for all years could help some taxpayers but cost others more, Schenck said. But it would also take the concern about the fraud label and its potential effects on nontax concerns off the table, she said.

To read the article in full, please visit Tax Notes’ website.