Financial transactions that lack ‘economic substance’ is classified as purchases of ‘distressed assets or debts’. In layman’s terms, these are financial undertakings in holdings that are not expected to generate any substantial revenue and profits; the reason why some individuals and entities still acquire such holdings is that they provide ‘tax breaks’ or ‘tax deductions’ from the losses of these holdings. It is in light of increasing activities regarding this matter that the IRS has been actively pursuing individuals and entities with offshore holdings so as to find out if they are legitimate holdings or not.
In line with this, the IRS launched in recent years the IRS offshore voluntary disclosure program, which gives individuals and entities with foreign holdings ample provisions to present their holdings and comply with the IRS rules and regulations. However, if you are already being subject to an audit by the IRS (whether or not the audit involves offshore holdings or not) then you cannot be eligible for the IRS offshore voluntary disclosure program.
If you find yourself in such a situation, or are looking into filing your voluntary disclosure then it may be best to hire an IRS attorney as counsel. Since the bureaucracies and regulations of the IRS are complex, they may best help you navigate through what compliance requirements will be necessary to process your affairs with the IRS. If you’re head on into any dealings with the IRS, an IRS attorney may be your best bet to navigate the entire process at a greater ease.