Recently, practitioners have suggested that the Internal Revenue Service engaged in certain “bait-and-switch” techniques with respect to voluntary disclosure, in that it was prosecuting persons who participated in their voluntary disclosure. (See BNA Daily Tax Report 5/6/2010 containing the text of a letter by certain practitioners to The Honorable Douglas H. Shulman, Commissioner, Internal Revenue Service.) We have confirmed with high-ranking officials of the IRS that this is not the case, and that the integrity of the voluntary disclosure program remains intact.

The IRS is prosecuting persons who have already been identified prior to submitting a purported voluntary disclosure. The ability of the IRS to prosecute persons who have been identified prior to a purported voluntary disclosure should come as no surprise to practitioners. Indeed, both the special voluntary disclosure program with respect to previously undisclosed foreign bank accounts (which ended October 15, 2009), and the general voluntary disclosure program under Internal Revenue Manual Section 9.5.11.9 permit voluntary disclosure only in situations in which the taxpayer has not been identified and in which the funds at issue are not from illegal sources. I.R.M. 9.5.11.9(4) provides...