Voluntary disclosure helps those with unreported foreign income

On Behalf of | Nov 14, 2022 | Tax Law |

The Internal Revenue Service (IRS) collects estimated income tax payments made on behalf of their employees, as well as quarterly payments from independent contractors. Every year, the IRS processes millions of income tax returns and flags a few of them for audits.

The IRS also investigates scenarios in which reports made by businesses, other tax filers and other governments indicate that individual filers did not accurately report their income. Those who make serious oversights when reporting their income could face an audit and tax penalties or possibly even criminal prosecution.

Maybe you didn’t report foreign income to the IRS because you thought that if you paid income taxes in the other country where you earned it, that was all that mattered. Mistakes are easy to make in complicated financial scenarios, including when someone earns income in more than one country. Could making a voluntary disclosure protect you?

The IRS is more lenient with cooperative taxpayers

Everyone makes mistakes, but the IRS is very unlikely to give you the benefit of the doubt if they catch you in a mistake.  Once the IRS has begun investigating you or announced charges against you, will be too late to voluntarily inform them of mistakes and oversights that you may have made.

If you take the initiative to inform the IRS of previous mistakes through voluntary disclosure before anyone officially discovers the errors on your returns, your chance of criminal prosecution goes down. Additionally, you may have fewer penalties to worry about after the IRS reviews your disclosure.

International transparency increases your risk

There was a time not that long ago when revenue earned in another company would be very difficult for the IRS to locate. However, international finance treaties have made the sharing of banking and income information across borders far more commonplace, with very few countries not participating.

Income that you earned in Europe, South America or Canada will be very difficult to hide from the IRS in most cases. Those who own up to their prior mistakes and seek to make amends can minimize the lacking consequences of their previous taxes on their financial future. Considering a voluntary disclosure can help those who believe they may owe additional taxes due to undisclosed foreign income.