IRS launches new voluntary disclosure program for tax compliance
- The IRS has introduced a revised Voluntary Disclosure Practice (VDP) to encourage taxpayers to report noncompliance and regain tax compliance.
- Taxpayers must now submit a preclearance request using IRS Form 14457, which includes detailed narratives about their noncompliance and requires them to affirm their willful conduct.
- The updated process emphasizes the importance of full payment of outstanding taxes and the necessity of having all required documents prepared for initial contact with the IRS.
In an effort to enhance tax compliance and reduce criminal exposure, the IRS has revised its Voluntary Disclosure Practice (VDP). This program allows taxpayers to disclose their willful noncompliance, submit accurate returns, and pay any outstanding taxes and penalties. The updated process aims to incentivize taxpayers to come forward and rectify their tax situations without facing criminal prosecution. The revised IRS Form 14457 now requires taxpayers to provide a comprehensive narrative detailing their noncompliance, including information about involved parties, financial institutions, and specific acts of noncompliance. Additionally, taxpayers must check a box affirming their willful conduct, which marks a significant change in the disclosure process. Another notable modification is the emphasis on full payment of outstanding tax liabilities, interest, and potential fraud penalties, which can be as high as 75%. Taxpayers are also required to prepare and have all necessary documentation ready for submission upon initial contact with IRS auditors, ensuring a more streamlined process. These changes reflect the IRS's commitment to improving tax compliance and encouraging voluntary disclosures. Taxpayers must be aware of the new requirements to avoid the risk of their disclosures being rejected, which could lead to further legal complications.