The Key Worldwide Foundation Contributors; The Charity in the College Entrance Exam Scam

 

The college admissions scandal involved many high profile people and shook up the world of college admissions practices throughout the country. William Singer, a college admissions consultant at the center of the college entrance scheme, which was uncovered by the IRS and FBI, pleaded guilty to racketeering and other charges on March 12, 2019.

As a result, dozens of parents may now face steep tax penalties after they allegedly paid bribes disguised as donations in order to get their children into elite colleges like USC, Stanford, and Yale. Prosecutors have informed the public that some wealthy parents involved in the scheme were able to claim tax deductions for purported donations that were funneled through the Key Worldwide Foundation, a Newport Beach, Calif.-based nonprofit. The organization, which the Internal Revenue Service declared tax-exempt under code Section 501(c)(3) in or about 2013, fronted as a vehicle for the bribes to be paid out to university administrators, athletic coaches, and test administrators, according to court documents.

If you are concerned about a charitable contribution deduction for funds being paid to the Key Worldwide Foundation or some other charity involved in college admissions or possibly other schemes, you may want to immediately start thinking about your options and consider whether it is time to proactively amend your tax returns voluntarily before getting caught by the IRS. Talking to a trained criminal tax attorney today could result in avoiding criminal prosecution tomorrow. There is only a short period of time before further IRS investigations begin and coming forward regarding tax-related issues might be your best bet! Remember, Al Capone went to jail because of his tax violations, rather than for other crimes!!

Below is an overview of the IRS policy regarding how to make a voluntary disclosure taken directly from the Internal Revenue Manual ("IRM"), a repository of all of the IRS policies and procedures that were made available to the public through the Freedom of Information Act.

TAX CRIMES - THE IRS VOLUNTARY DISCLOSURE PRACTICE IN GENERAL

IRM 9.5.11.9

(1) It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended. This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel. Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.

(2) A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.

(3) A voluntary disclosure occurs when the communication is truthful, timely, complete, and when:

a. the taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining his or her correct tax liability; and

b. the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.

(4) A disclosure is timely if it is received before:

a. the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;

b. the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;

c. the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or

d. the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).

(5) Any taxpayer who contacts the IRS in person or through a representative regarding voluntary disclosure will be directed to Criminal Investigation for evaluation of the disclosure. Special agents are encouraged to consult Area Counsel, Criminal Tax on voluntary disclosure issues.

(6) Examples of voluntary disclosures include:

a. a letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above. This is a voluntary disclosure because all elements of (3), above are met.

b. a disclosure made by a taxpayer of omitted income facilitated through a barter exchange after the IRS has announced that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intention to do so. In addition, the taxpayer files complete and accurate amended returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving barter exchanges does not yet directly relate to the specific liability of the taxpayer and because all other elements of (3), above are met

c. a disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which the IRS has begun a civil compliance project and already obtained information which might lead to an examination of the taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so. In addition, the taxpayer files complete and accurate returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving the scheme does not yet directly relate to the specific liability of the taxpayer and because all other elements of (3), above are met.

d. A disclosure made by an individual who has not filed tax returns after the individual has received a notice stating that the IRS has no record of receiving a return for a particular year and inquiring into whether the taxpayer filed a return for that year. The individual files complete and accurate returns and makes arrangements with the IRS to pay the tax, interest, and any penalties determined by the IRS to be applicable in full. This is a voluntary disclosure because the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so and because all other elements of (3), above, are met.

(7) Examples of what are not voluntary disclosures include:

a. a letter from an attorney stating his or her client, who wishes to remain anonymous, wants to resolve his or her tax liability. This is not a voluntary disclosure until the identity of the taxpayer is disclosed and all other elements of (3) above have been met.

b. a disclosure made by a taxpayer who is under grand jury investigation. This is not a voluntary disclosure because the taxpayer is already under criminal investigation. The conclusion would be the same whether or not the taxpayer knew of the grand jury investigation.

c. a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted gross receipts from a partnership, but whose partner is already under investigation for omitted income skimmed from the partnership. This is not a voluntary disclosure because the IRS has already initiated an investigation which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing investigation.

d. a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted constructive dividends received from a corporation which is currently under examination. This is not a voluntary disclosure because the IRS has already initiated an examination which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing examination.

e. a disclosure made by a taxpayer after an employee has contacted the IRS regarding the taxpayer's double set of books. This is not a voluntary disclosure even if no examination or investigation has yet commenced because the IRS has already been informed by the third party of the specific taxpayer's noncompliance. The conclusion would be the same whether or not the taxpayer knew of the informant's contact with the IRS.

The IRS stresses that acceptance into a voluntary disclosure arrangement depends on the individual facts and circumstances involved in each case. Taxpayers with unreported income should weigh their options on how to comply with their tax obligations, including taking advantage of coming in voluntarily. Contact us for a privileged and confidential consultation.

Please call us today for a privileged and confidential consultation with Tax Attorney, Jeffrey Freeman. During our consultation process, we will analyze the facts of your situation and carefully review the laws and policies of the IRS to determine whether a voluntary disclosure would be helpful in your circumstances. If you are eligible to make a Voluntary Disclosure, this may be an option that can resolve your issue without risking criminal exposure. Call a trained criminal tax attorney today!!