Taxpayer Bill of Rights  

Letter from IRS Chief Counsel
Re: Remedial Filing Program

Mr. David C. Hilliard, Esq.
President, Chicago Bar Association
29 South LaSalle Street
Chicago, Illinois 60603

Dear Mr. Hilliard:

I have received your letter of March 28, 1983 recommending that the Internal Revenue Service adopt a remedial filing program in an effort to return numerous taxpayers to the tax rolls. Your proposal resembles in some respects the Service's "voluntary disclosure" policy, which was abandoned in 1952. Under the voluntary disclosure policy, a taxpayer who made a truly voluntary disclosure of a willful violation of the Internal Revenue laws was not subject to criminal prosecution for that violation. This policy generated a substantial amount of litigation regarding what constituted a voluntary disclosure and the Service concluded that the problems created by the policy outweighed its benefits. Under current procedures, a voluntary disclosure of a tax violation by a proposed defendant is one factor which is considered in arriving at the determination of whether the case warrants a recommendation of criminal prosecution.

Your proposal attempts to use a more mechanical test, related to the timing of the disclosure, as a substitute for the concept of "voluntary". In my opinion problems similar to those encountered in the old voluntary disclosure policy would still remain unanswered. For example, the proposed standard applies to disclosures made prior to contact by the Internal Revenue Service with the taxpayer or other "related party" regarding a matter "relating to any of the years for which the taxpayer has not filed". In our opinion the meaning of the term "related party" and issues regarding whether the contact "related" to the years in issue would soon become the basis of heated litigation. Would contact by the Service with an employer, employee, customer, supplier, acquaintance or other witness who could reasonably be expected to provide evidence relating to the offense be a contact with a related party? Would the examination of a customer's or employer's tax liability, that will likely lead to discovery of the taxpayer's crime, be a related matter?

The proposal raises questions regarding the extent of disclosure necessary to qualify. Would the taxpayer be required to disclose his/her intent to defraud and any affirmative acts taken to defraud if evasion of taxes was intended? The fifty percent addition to tax for fraud may be dependent on full disclosure. Would denial of fraudulent intent when fraud could be proven allow the Government to prosecute?

Your letter says the proposal would apply only to misdemeanor prosecutions for failure to file; however, the proposed standard gives amnesty from prosecution for "any criminal offense relating to such failure to file". While a mere failure to file is a misdemeanor punishable under 26 U.S.C. § 7203, a failure to file combined with any affirmative act, the effect of which would be to mislead or conceal and thus defeat the tax, could give rise to a felony prosecution for willful evasion in violation of § 7201. If the proposal related only to a misdemeanor, a taxpayer who voluntarily disclosed that he/she did not file would not know at the time of disclosure whether there was still a possibility for a felony prosecution.

From the standpoint of tax administration, there is some doubt about the effect of your proposal upon voluntary compliance in the future. There is the possibility that some taxpayers who would otherwise timely file their returns may anticipate future amnesty programs and not file. There is also a possible negative reaction from those taxpayers who have filed timely returns and complied with the tax laws. Also unanswered is the affect such a program will have on prosecution of similarly situated taxpayers who were detected prior to the program.

The Service appreciates your interest and work in attempting to improve the tax system. This issue has been approached many times over the years and it has proven difficult to formulate a satisfactory answer. I have forwarded your letter to Mr. Donald Bergherm, the Associate Commissioner (Operations) for his further consideration.

Sincerely,
Kenneth W. Gideon

Copy sent to Messrs. Dennis J. Carlin, Burton H. Litwin and Theodore A. Sinars on May 2nd.

Previous| First | Next

1983 Hearings Main | Taxpayer Bill of Rights Main | Home

  to download the Adobe Acrobat PDF Reader