What is Voluntary Disclosure Practice?
An IRS process for taxpayers with willful non-compliance to come forward and resolve tax issues, potentially avoiding criminal prosecution.
Definition
The IRS Voluntary Disclosure Practice is a longstanding practice (not a formal program) that provides a path for taxpayers with willful non-compliance to come forward and disclose their previously unreported tax liabilities. While it doesn't guarantee immunity from prosecution, a voluntary disclosure is considered by the IRS in deciding whether to recommend criminal prosecution. The process involves submitting a preclearance request, making a full disclosure, cooperating with the IRS, and paying all taxes, interest, and penalties.
Who Needs to Know This?
Taxpayers with willful non-compliance who would not qualify for the Streamlined Filing Procedures, including those with undisclosed foreign accounts and unreported income who acted willfully.
Key Deadline
No specific deadline, but disclosure must be made before IRS initiates an investigation
Potential Penalties
All taxes owed plus interest and civil penalties; avoidance of criminal prosecution in most cases
Related Forms
Common Mistakes to Avoid
- 1Waiting until the IRS contacts you (disclosure must be voluntary and timely)
- 2Not understanding this is for willful non-compliance (use Streamlined for non-willful)
- 3Making an incomplete disclosure
- 4Not engaging experienced tax counsel for the process
Related Terms
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