What is Domestic Voluntary Disclosure (DVD)?
In contrast to the Offshore Voluntary Disclosure Program, where our clients have unreported income and bank accounts overseas, a Domestic Voluntary Disclosure (DVD) is an IRS program where the U.S.-based taxpayer has unreported income from U.S. sources only.
Example Scenario
For instance, you are a landlord or a business owner where you received payment that was never reported.
Note: This is not a payroll tax or sales tax issue where you withheld money that was collected and was to be kept in escrow and then submitted to the government.
Over the years, the income has accumulated and now you are thinking:
“What if I get caught?”
At that point, you are most likely thinking about making a DVD.
Eligibility and Limitations
- Voluntary disclosure treatment is not available if the IRS has learned of the taxpayer’s liability through:
- The news media
- An informant
- Bank reporting
- The fruits of its own investigation
- Voluntary disclosure does not protect a taxpayer whose unreported income was from an illegal source.
How We Can Help
If you are already the target of an IRS criminal investigation or prosecution, our tax attorneys have substantial experience defending clients facing:
- The IRS criminal investigation process
- Prosecution for federal tax crimes
When your problem is a pending or potential IRS criminal tax investigation, you need serious help.
Why DVDs Are Increasing
Our law firm has been dealing with an increasing amount of DVDs because the IRS and other governmental agencies have been receiving less money from taxpayers than needed to keep things afloat.
- Small business audits are increasingly on the rise.
- Auditors are looking carefully into:
- How much people are spending
- How much they are depositing
- How much they are reporting
We have been successful in shifting this problem from a criminal penalty to a civil penalty.
The expectation should be to pay out money to the IRS, but not jail time.
IRS Evaluation Process
Once the disclosure is made:
- A special agent will evaluate it.
- If the agent deems it to be truthful and complete, he or she will so indicate to the special agent in charge.
Timeline
According to the IRM, the evaluation should be completed within 10 working days from when it was received.
Format Requirements
- The disclosure doesn’t have to be communicated in any particular format.
- Processing it will require information outlined in IRM 9.5.11.9.6.
Potential Outcomes
If the IRS accepts the disclosure:
- It is agreeing to take it into consideration in deciding whether to recommend prosecution by the Justice Department.
- If all other factors are met, the disclosure may result in prosecution not being recommended.
Frequently Asked Questions
What is the difference between Domestic and Offshore Voluntary Disclosure?
A Domestic Voluntary Disclosure (DVD) involves unreported income from U.S. sources only, while an Offshore Voluntary Disclosure Program (OVDP) addresses unreported foreign income or assets. DVDs typically involve landlords or business owners with undisclosed U.S.-based income.
Who qualifies for a Domestic Voluntary Disclosure?
Taxpayers with unreported income from legal U.S. sources may qualify, provided the IRS has not already identified the liability through media, informants, or investigations. Those with income from illegal sources or under criminal investigation may not qualify.
What are the benefits of making a Domestic Voluntary Disclosure?
Making a DVD may reduce exposure to criminal charges. If the disclosure is truthful and complete, and accepted by the IRS, it may result in civil penalties instead of criminal prosecution.
How long does the IRS take to evaluate a DVD submission?
According to the Internal Revenue Manual, a special agent should complete the evaluation within 10 working days of receiving the disclosure. The outcome may affect whether the case is recommended for prosecution.
Why are Domestic Voluntary Disclosures increasing?
The IRS is intensifying audits of small businesses due to revenue shortfalls. Greater scrutiny on spending, deposits, and reported income has led more individuals to proactively disclose unreported earnings through DVDs.