IRS Voluntary Disclosure Program (VDP)

The IRS Voluntary Disclosure Practice (VDP) offers a pathway for taxpayers who have willfully failed to report income or meet tax obligations – including those with undisclosed foreign financial accounts – to come forward and correct their tax filings.

The program promotes compliance by providing a structured process that may help mitigate civil penalties and avoid criminal prosecution. If the disclosure is accepted and the taxpayer fully cooperates, the IRS typically resolves the matter civilly through a closing agreement.

Pro Tax Tip: The VDP is not available to taxpayers whose income is derived from illegal activities (e.g., drug trafficking or fraud).

To apply for the IRS Voluntary disclosure practice (VDP), taxpayers must first submit IRS Form 14457, which consists of two parts:

1. Preclearance Request: This is submitted to the IRS Criminal Investigation (CI). division and it requires detailed information about the undisclosed income, the reasons for non-compliance, and the taxpayer’s intent to rectify the situation. If CI grants preclearance, the taxpayer can proceed with the second part.
2. Full Disclosure and Payment: This second part involves a full disclosure of tax liabilities, including supporting documentation. You must submit amended tax returns and pay or arrange for the payment of all due taxes, penalties, and interest. The IRS will then review the submission, determine final penalties, and provide further instructions.

Pro Tax Tip: Consult a qualified top U.S. tax attorney before applying to assess risks and structure your disclosure properly.

The VDP is generally available to individuals and entities with undisclosed income, particularly those with potential criminal exposure due to willful non-compliance. This includes taxpayers who have willfully failed to report income, failed to file tax returns, or failed to pay taxes.

Eligibility requirements include:

• The taxpayer must not be currently under an IRS audit, civil investigation, or criminal investigation.
• The taxpayer must be willing to fully disclose tax noncompliance and pay all owed taxes, penalties, and interest.
• The disclosure does not involve income from illegal sources (e.g., drug trafficking, fraud).

Pro Tax Tip: The VDP is intended for willful violations. Taxpayers with non-willful mistakes may be better suited for the Streamlined Filing Compliance Procedures or other IRS programs.

No, the IRS does not automatically accept all Voluntary disclosure practice (VDP) applications.

To be accepted, taxpayers must meet specific criteria, including:

• Submitting a truthful, complete, and timely disclosure
• Not currently being under IRS tax audit, civil tax investigation, or criminal tax investigation
• Not attempting to disclose income from illegal sources

The first step – Part I of Form 14457 – is a preclearance request reviewed by IRS Criminal Investigation (CI). Preclearance does not guarantee acceptance. If approved, the taxpayer may proceed to submit Part II, the full disclosure.

Even after preclearance, the IRS can still reject an application if it finds the taxpayer ineligible or uncooperative during the process.

Pro Tax Tip: Consulting a knowledgeable IRS VDP tax attorney before applying can help reduce the risk of rejection.

For an IRS VDP application to be accepted, taxpayers must meet several key requirements:

• Preclearance Approval (Form 14457 – Part I): Taxpayer must submit a preclearance request to IRS Criminal Investigation (CI), and receive approval before proceeding.
• Timeliness: The disclosure must be submitted before the IRS initiates any audit, civil examination, or criminal investigation.
• Voluntariness: The disclosure must be genuine and not prompted by an imminent IRS action.
• Completeness and Accuracy: All relevant facts must be fully and truthfully disclosed, including all noncompliant years, entities, and financial accounts.
• Cooperation: The taxpayer must fully cooperate with the IRS throughout the civil review process.
• Payment: The taxpayer must be prepared to pay or arrange to pay all outstanding tax liabilities, including interest and penalties.
• No income from illegal source: The VDP is not available to those disclosing income from criminal activities (e.g., fraud, drug trafficking).

Pro Tax Tip: Failing to meet any of these conditions may result in rejection. Even if accepted, the VDP does not guarantee immunity from civil penalties, but it generally protects against criminal prosecution when the taxpayer complies fully with all tax law obligations.

Yes. While the IRS does not set a fixed number of days, there are time-sensitive expectations once a taxpayer enters the Voluntary disclosure practice (VDP).

After receiving preclearance approval (Form 14457 – Part I), the taxpayer must:

• Promptly submit Part II of Form 14457 (the full disclosure), typically within 45 days, unless the IRS grants an extension.
• Once accepted, the IRS expects the taxpayer to fully cooperate and provide all requested information and documentation within reasonable deadlines set during the civil examination phase.

Failure to provide information in a timely manner or to cooperate fully can result in removal from the program and potential exposure to criminal prosecution.

Pro Tax Tip: Working with experienced IRS VDP tax attorneys, such as those at taxlawyer.com, will ensure you meet all deadlines and preserve your eligibility.

The processing time for an IRS Voluntary disclosure practice (VDP) case can vary significantly based on the complexity of the case, IRS workload, and the taxpayer’s responsiveness. However, here’s a general timeline:

• Preclearance (Part 1 of Form 14457) – Typically takes 30 to 60 days for IRS Criminal Investigation (CI) to approve or deny.
• Full Disclosure Submission (Form 14457 – Part II): After preclearance approval, you must submit Part II; usually within 45 days, unless an extension is granted.
• Full case resolution – Once your full disclosure is submitted, the process can take several months to over a year, or even longer for more complex cases.

Be prepared for a detailed review process, as the IRS carefully examines each disclosure before finalizing penalties and payment arrangements. Prompt, complete responses and professional representation can help shorten the timeline.

The IRS Voluntary disclosure practice (VDP) offers significant advantages to taxpayers who’ve willfully failed to comply with tax laws:

• Avoid criminal charges related to tax noncompliance.
• Face lower penalties compared to a tax audit or investigation.
• Negotiate a payment plan for outstanding taxes.
• Gain certainty with a structured IRS resolution process.
• Resolve past tax issues and move forward without legal worries.
• Work with an experienced IRS VDP tax attorney to help ensure favorable payment arrangements or penalty mitigation.

Pro Tax Tip: These benefits are only available if you act before the IRS contacts you and comply fully throughout the process.

Penalties for FBAR (Foreign Bank Account Report) violations can be severe, but the VDP may help reduce them.

• Willful violations: The penalty is the greater of $100,000 or 50% of the highest account balance at the time of violation. Criminal penalties can include fines up to $250,000 and imprisonment.
• Non-willful violations: The penalty is generally up to $10,000 per violation, adjusted for inflation.
• VDP benefits: Participation can reduce penalties and lower the risk of criminal prosecution.

Each case is reviewed individually, and penalty amounts depend on factors such as intent and cooperation. It is important to note that even with voluntary disclosure, there’s no absolute guarantee of avoiding criminal prosecution, especially in cases of egregious willful violations.

The IRS Voluntary disclosure practice (VDP) is a pathway for taxpayers who have willfully failed to comply with U.S. tax laws – such as failing to report income or foreign assets – to come forward, correct their filings, and avoid criminal prosecution.

Yes, the IRS Voluntary disclosure practice (VDP) is still available, but its structure has evolved. The traditional VDP was discontinued, but the IRS continues to allow voluntary disclosures through its preclearance process with the IRS Criminal Investigation (CI).

While the program details and penalties may change over time, voluntary disclosure remains a viable option. Taxpayers should check with the IRS or consult experienced tax professional lawyers, such as those at taxlawyer.com, for the most up-to-date information.

At TaxLawyer.com, our skilled IRS Voluntary Disclosure Practice (VDP) attorneys navigate the program’s strict requirements for you, avoid common pitfalls, and negotiate directly with the IRS, ensuring a seamless experience from start to finish.

We offer IRS VDP services in the following states:

We assist taxpayers nationwide in navigating the VDP process, reducing penalties, and avoiding criminal prosecution for willful tax noncompliance.

Contact us today for trusted legal guidance on VDP filings, audit support, and IRS negotiations.