The IRS on Monday opened a 90-day public comment period, which ends March 22, 2026, for proposed updates to its voluntary disclosure practice, including a more streamlined penalty framework.
The IRS noted that the proposed revisions reflect the agency’s commitment to improve its processes and to further incentivize noncompliant taxpayers to come into compliance.
The VDP is a longstanding practice of IRS Criminal Investigation. The agency says:
A voluntary disclosure occurs when you provide a truthful, timely, and complete disclosure of your willful noncompliance through designated procedures. It also requires you to:
- Timely submit all required documentation including a Form 2848 for each taxpayer and entity entering the program,
- Cooperate with the IRS in determining your correct tax liability, and
- Pay in full or secure a full-pay installment agreement for the tax, interest and any applicable penalties you owe.
A voluntary disclosure is timely if we receive it before we have:
- Commenced a civil examination or criminal investigation.
- Received information from a third party (e.g., informant, other governmental agency, John Doe summons, etc.) alerting us to your noncompliance.
- Acquired information directly related to your specific noncompliance from a criminal enforcement action (e.g., search warrant, grand jury subpoena, etc.).
CI accepts timely, accurate, and complete voluntary disclosures under consideration when determining whether to recommend criminal prosecution. A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended.
Key proposed changes to the VDP include:
Disclosure and compliance requirements: Under the proposed framework, taxpayers conditionally approved to participate must, within three months:
- File amended or delinquent income tax returns, international information returns, and Reports of Foreign Bank and Financial Accounts (FBARs), as applicable;
- Pay all applicable taxes, penalties, and interest in full; and
- Execute required agreements to finalize participation.
The disclosure period will generally cover the most recent six years for delinquent and amended returns, the IRS said. Taxpayers who fully comply with these requirements won’t be recommended for criminal prosecution.
Penalty framework: The IRS said the proposed penalty structure is intended to be clear, predictable, and consistent across all disclosures:
- For delinquent returns, failure-to-file penalties apply for each year in the disclosure period; failure-to-pay penalties don’t apply.
- For amended returns, a 20 percent accuracy-related penalty applies for each year in the disclosure period.
- For delinquent or amended FBARs, penalties apply per year and are subject to annual inflation adjustments.
- For delinquent or amended international information returns, penalties up to $10,000 per return, per year, apply.
Application and processing: Under the proposed updates, taxpayers will electronically submit Form 14457, Voluntary Disclosure Practice Preclearance Request and Application. The disclosure must identify all years of noncompliance and provide a full and accurate description of the taxpayer’s willful noncompliance, the IRS said.
Once precleared, taxpayers will receive a conditional approval letter directing them to file the required returns and pay all amounts due within three months.
Taxpayers must also:
- Submit a signed closing agreement waiving statutes of limitations;
- Agree to accuracy-related penalties; and
- Sign an FBAR agreement, if applicable.
The IRS said it may rescind the taxpayer’s conditional approval for failure to comply with VDP terms. Noncompliant taxpayers may be subject to full examination and all applicable civil and criminal penalties. While the IRS may review some disclosures, not all disclosures will be subject to a full examination, the agency added.
Payment terms: Taxpayers must make full payment within three months of their conditional approval.
Comment period: The IRS invites public comments on the proposed updates during a 90-day comment period starting Dec. 22. Comments may be submitted by email to vdp@ci.irs.gov, with the subject line “PROPOSED VDP PUBLIC COMMENT.” If finalized, the revised procedures are expected to take effect six months after publication of the final terms.
Resources: More information about the IRS Voluntary Disclosure Practice, including a list of frequently asked question, is available at IRS.gov/vdp.
Photo credit: Douglas Rissing/iStock
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