IRS Voluntary Disclosure Practice

Source:  Department of Treasury

IRS Voluntary Disclosure Practice (VDP)

Disclaimer: The following information about the IRS Voluntary Disclosure Practice (VDP) is provided for general informational purposes only and does not constitute legal or tax advice.
Source: Internal Revenue Service (IRS)

What is the IRS Voluntary Disclosure Practice (VDP)?
The IRS Voluntary Disclosure Practice (VDP), outlined in Internal Revenue Manual (IRM) Section 9.5.11.9, offers an opportunity for taxpayers who have failed to report foreign financial accounts or pay taxes owed—and who may face criminal liability as a result—to come into compliance.

This long-established IRS Criminal Investigation (CI) practice allows eligible taxpayers to voluntarily disclose past noncompliance in a truthful, timely, and complete manner. While participation in VDP does not guarantee immunity from criminal prosecution, it is often a critical factor considered by the IRS when deciding whether to pursue charges.

To qualify, taxpayers must:

• Cooperate fully with CI to determine accurate tax liability; and
• Make good-faith arrangements to pay all taxes, interest, and penalties due.

What Makes a Disclosure “Timely”?
A disclosure is considered timely if it is received by the IRS before any of the following occurs:

• The IRS initiates a civil audit or criminal investigation or notifies the taxpayer of its intent to do so.
• The IRS receives information from a third party (such as a whistleblower, another government agency, or via John Doe summons).
• The IRS obtains information from a criminal enforcement action, including search warrants or grand jury subpoenas.

What Happens After Disclosure?
The IRS typically reviews the most recent six tax years.

• Taxpayers are subject to taxes, interest, and penalties as determined by the IRS.
• A civil fraud penalty is generally applied to the year with the highest tax liability, though it may be applied to multiple years—or even beyond six years—if the taxpayer fails to cooperate.
• Willful FBAR (Foreign Bank Account Report) penalties may also be assessed under the IRM guidelines.

Taxpayers may request the imposition of lesser penalties—such as accuracy-related or non-willful FBAR penalties—but such requests are rarely granted. Penalties for failure to file international information returns are not automatically imposed.

Who Should Consider VDP?
The VDP is intended for taxpayers who:

• Have committed tax-related crimes; and
• Face potential criminal liability due to willful violations of tax laws.

💡 Note: VDP is not available to taxpayers with illegal sources of income.

VDP Update 06-24-2025

IRS Taxpayer Advocate Convinces IRS to Remove Willfulness Requirement for Voluntary Disclosure Practice. Click here OVP Update June 2025

How to Submit a Voluntary Disclosure

Step 1: Pre-Clearance Request
Complete Part I of Form 14457 – Voluntary Disclosure Practice Preclearance Request and Application to determine your eligibility. Submit via:

• Fax: (267) 466-1115
• Mail:
  IRS Criminal Investigation
  Attn: Voluntary Disclosure Coordinator
  2970 Market St., 1-D04-100
  Philadelphia, PA 19104

Step 2: Formal Disclosure
Once CI confirms pre-clearance, submit Part II of Form 14457 within 45 days. If needed, you may request an extension—granted only once and on a case-by-case basis.

If your application is approved, CI will issue a Preliminary Acceptance Letter and forward your case to the civil division of the IRS. An examiner will then contact you directly to proceed.

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