Article about the panel entitled "Update: Tax Division, U.S. Department of Justice," moderated by Caroline D. Ciraolo at the Midyear Meeting of the American Bar Association Section of Taxation in Boca Raton, FL

In the TaxNotes article entitled, "Justice Department Interested in Voluntary Disclosure Lies," Nathan J. Richman discusses the panel entitled "Update: Tax Division, U.S. Department of Justice," moderated by Caroline D. Ciraolo at the Midyear Meeting of the American Bar Association Section of Taxation in Boca Raton, FL. 

Taxpayers who lie during attempts to avoid criminal tax charges via voluntary disclosure to the IRS will get the attention of the Justice Department Tax Division’s prosecutors, according to the division’s head.

The Tax Division’s interest in a taxpayer whose attempted voluntary disclosure wasn’t accepted by the IRS will depend on why it was rejected, according to Richard Zuckerman, principal deputy assistant attorney general in the Tax Division.

“In my view, it’s going to be dependent on whether the rejection is based on a false statement or something else,” Zuckerman said February 1 at the American Bar Association Section of Taxation conference in Boca Raton, Florida.

In response to a question about disagreements between IRS examiners and taxpayers regarding the level of cooperation, Zuckerman said, “I would think we would not see a rejected [voluntary disclosure] unless the rejection is based on some form of fraud or false statement. . . . Your attempt to get into the [voluntary disclosure program] by lying is not going to sit well with us.”

Other rejections are likely to end up as civil enforcement cases, Zuckerman said, adding that he wants “demonstrable, provable fraud” for criminal prosecution.

The Justice Department has charged a cocoa trader with false filing for allegedly lying on a submission attempting entry to the cheaper stream lined domestic offshore program alternative to the former offshore voluntary disclosure program.

What’s the Hurry?

Caroline Ciraolo, a former head of the Tax Division who is now with Kostelanetz & Fink LLP, asked whether taxpayers facing suits to collect foreign bank account disclosure penalties might have a chance to settle with the division before the civil suit gets led.

“Nobody really wants to litigate a case that can be settled where both sides feel the settlement is fair,” Zuckerman said. “The problem with these kind of cases is there is a short statute of limitations — two years.”

That usually leaves little time for settlement negotiations by the time the Tax Division has the case. Zuckerman explained that with the prospect of a looming expiration of the period to bring that suit, the division rarely sends out an invitation for a prefiling conference. “But where there is time and where the lawyer looking at the file thinks that it would be a good idea to discuss, maybe we do use them,” he said.

And a case that can be settled would likely be resolved while it’s at the IRS, Zuckerman said.

When Ciraolo asked about the possible use of statute of limitation waivers to aid pre-suit settlement discussions, Zuckerman said the Tax Division wouldn’t likely initiate an extension of the limitations period, but he considered the idea of the taxpayer suggesting it. “I don’t know whether or not it would work,” he added.

Official Nomination

That same day, President Trump announced his intention to nominate Zuckerman to be the assistant attorney general of the Tax Division.

Zuckerman was appointed as the principal deputy attorney general, and started operating as the head, of the Tax Division at the end of 2017. There hasn’t been a Senate-approved assistant attorney general since Kathryn Keneally left in 2014.

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