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As we talk to our clients about their options with regard to reporting their previously undisclosed foreign accounts to the IRS, we’ve noticed a new term pop-up recently. This term is “Qualified Quiet Disclosure.” The first, and most important thing to understand, is that the IRS does not “qualify” quiet disclosures. There is no quiet disclosure of any kind that the IRS has sanctioned or approved. From the outset, the IRS’s position on quiet disclosures has been that taxpayers who choose not to disclose through the Offshore Voluntary Disclosure Program risk severe civil penalties and potential criminal prosecution.

“Qualified Quiet Disclosure” is an industry term being used by some tax professionals to alternatively describe two different situations:

  1. An Offshore Voluntary Disclosure Program submission, followed by opting-out of the civil penalty structure offered under the program to request a reduction or waiver of penalties that may otherwise apply. For additional information on this option, please visit our Opt-Out page.
  2. The tax professional “qualifies” on grounds of their own knowledge of tax law that the taxpayer would not be subject to criminal prosecution or willful civil penalties and submits a quiet disclosure to the IRS, on behalf of the taxpayer, along with a letter requesting a waiver of civil penalties that may otherwise apply.

This second option is viable and can be viewed as a type of shortcut to the opt-out stage of the OVDP process. After all, if willful civil penalties and criminal prosecution are not at issue, the decision the IRS has to make is whether or not any civil penalties should apply, and, if so, how much of a penalty should be assessed. This is the same decision that must be made by the Opt-Out Revenue Agent.

There are two added risks with this type of “qualified” quiet disclosure. First, the IRS may view this as an attempt to circumvent the processes and procedures it has established for taxpayers in this exact situation, thereby eliminating any good faith negotiations that may be possible during an opt-out audit. Second, it heavily relies on the tax professional’s “qualification” of the case as one that will not be subject to willful civil penalties or criminal prosecution. Though opinions from educated, experienced tax professionals are often reliable, the case law in this area is not yet well-established, and it is difficult to predict when or why the IRS may want to make an example out of a taxpayer’s case.

Qualified Quiet Disclosures and Offshore Accounts

A “qualified” quiet disclosure does not provide protection against criminal prosecution or willful civil penalties so a careful analysis of the facts of your case to determine whether a qualified quiet disclosure is appropriate or whether the Offshore Voluntary Disclosure Program might make better sense is a necessary preliminary step if you have undisclosed foreign assets and accounts. If you hold an offshore account that you have not previously disclosed, contact the experienced offshore account compliance attorneys at Brown, PC at 817-870-0025, toll free at 888-870-0025 or online to schedule a highly confidential consultation to discuss your disclosure options.

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