Truthful, timely and complete disclosures

Quiet Disclosure: A quiet disclosure is a process through which a taxpayer files amended tax returns together with FBARs and other unfiled information returns without first contacting the IRS. The taxpayer who proceeds with a quiet disclosure does not receive immunity from potential criminal prosecution or from the civil and criminal monetary penalties that may be assessed.
Noisy Disclosure: A noisy disclosure is a truthful, timely and complete disclosure to the IRS where the taxpayer demonstrates a willingness to cooperate in order to determine and pay the correct tax, interest and penalty liabilities. If completed through one of the IRS Offshore Voluntary Disclosure Programs, other than the Streamlined Program , the taxpayer receives immunity from criminal prosecution and is subject to a revised civil penalty regime.
Semi-Quiet Disclosure: The taxpayer’s attorney submits a letter to the IRS to make a voluntary disclosure of unreported income and unfiled informational returns. The letter is submitted together with amended income tax returns, unfiled informational returns and offers to pay the taxes, interest and penalties determined by the IRS to be due and owing. The amended income tax returns are submitted in compliance with QAR procedures, to protect the taxpayer from certain penalty assessments.

The QAR procedure is designed to address civil violations of the Internal Revenue Code in a manner that protects the taxpayer from certain accuracy-related penalties. A QAR is an amended return filed after the original properly extended due date of the return but before any of the following events:
1. The date the taxpayer is first contacted by the IRS for any examination, including a criminal investigation;
2. The date any person is contacted for a tax shelter promoter examination under Section 6700
with respect to any tax benefit claimed on the return;
3. The date the IRS issues a John Doe summons under Section 7609(f) relating to the tax liability
of a person, group, or class that includes the taxpayer;
4. The date the Commissioner announces a settlement initiative to compromise or waive penalties
with respect to a listed transaction; and/or
5. With respect to a pass-through item, the date the pass-through entity is first contacted by the
IRS for any examination with respect to the entity’s return.

The QAR procedure allows a taxpayer to treat the amount of tax reported as the tax reported on the original return so that the accuracy-related penalty will not apply. However, if the IRS determines that the failure to report is due to fraud, the taxpayer is potentially liable for criminal prosecution or, at the very least, a fraud penalty equal to 75% of the underpayment of tax. In addition, the QAR procedure does not protect the taxpayer from other civil penalties. Taxpayers faced with potential assessments of these penalties will have to challenge the assessments based on reasonable cause arguments, when such exceptions are available.

Ownership of a foreign bank account is a reportable transaction but not a listed transaction.  Furthermore, the non-prosecution agreements between the Department of Justice and certain foreign financial institutions that facilitated U.S. taxpayer efforts to conceal foreign investments were not made pursuant to Section 6700 and do not involve listed transactions. Thus, taxpayers may be able to come into compliance through the submission of QARs provided that they are submitted prior to the occurrence of one of the enumerated preclusion events.
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