Question 2

Tax Fraud – Frequently Asked Questions (page 2)

Does the IRS offer leniency in the event that voluntary disclosure is made by the defendant?

The IRS does not have a “leniency” program, per se. However, subsequent to the UBS scandal, the IRS did implement a temporary leniency policy that expired in October 2009. The Ohio Department of Taxation also implemented a voluntary disclosure program for taxpayers who have not previously reported the full extent of unreported income held in Swiss bank accounts. However, if the commencement of the case was based on little, if any, substantive evidence of wrongdoing, and there is clear exculpatory evidence, counsel may be able to convince the Government to decline to pursue the case during its early stages.

Early in a criminal tax investigation, it is likely that the IRS would close a criminal investigation because of certain perceived impediments to a successful prosecution. Such potential impediments are reflected in the IRS criminal tax policies concerning health, solicitation of returns and voluntary disclosure. The Internal Revenue Manual states that health, age and mental condition are among the factors which are to be considered when making a criminal prosecution recommendation, to the extent that such conditions affect a finding of willfulness and the probability of conviction (see I.R.M. 38.3.1.5). The policy provisions also reflect that active solicitation of a return is considered by the Department of Justice to be detrimental to a criminal case. (see I.R.M. 38.3.1.6). Finally, the policy provisions also state that a voluntary disclosure will be considered in determining whether or not a criminal prosecution will be recommended. (see I.R.M. 38.3.1.3.1 and I.R.M. 9.5.11.9).