IRS Publishes Proposed Changes to Voluntary Disclosure Practice in 2026

The Internal Revenue Service (IRS) has published proposed changes to its Voluntary Disclosure Practice (VDP) for 2026. The proposed changes, announced on December 22, 2025, are currently subject to a 90-day public comment period that closes on March 22, 2026. Learn more from Texas criminal tax lawyer Lawrence Brown:

Proposed VDP Changes Seek to “Further Incentivize Non-Compliant Taxpayers”

As the IRS explains in a press release announcing the proposed changes to the Voluntary Disclosure Practice, its proposal reflects the IRS’ “commitment . . . to further incentivize non-compliant taxpayers to come into compliance.” The VDP is a longstanding program that provides U.S. taxpayers with an option to proactively resolve “willful” tax law violations without facing criminal prosecution. While submitting a voluntary disclosure “will not automatically guarantee immunity from prosecution,” it, “may result in prosecution not being recommended.”

This core aspect of the VDP isn’t changing. The VDP remains an option for U.S. taxpayers facing criminal exposure, and taxpayers must still apply to participate. If the IRS accepts a taxpayer’s application, the taxpayer must then work with the IRS “in determining [their] correct tax liability” in order to avoid facing criminal charges.

So, what is changing?

The IRS’ proposal addresses both substantive and procedural aspects of the Voluntary Disclosure Practice. If the IRS’ proposal becomes final in its current form, key changes would include:

1. Application and Processing

The IRS’ proposal includes changes to the VDP application process for U.S. taxpayers as well as the IRS’ “preclearance” process for taxpayers conditionally approved to participate in the program. The proposed changes include:

• Taxpayers seeking to participate in the VDP must electrically file IRS Form 14457, Voluntary Disclosure Practice Preclearance Request and Application.
• In their applications, taxpayers must, “identify all years of noncompliance and provide a full and accurate description of the taxpayer’s willful noncompliance.”
• If the IRS preclears a taxpayer to participate in the VDP, within three months, the taxpayer must: (i) submit a signed closing agreement waiving all applicable statutes of limitations; (ii) agree to pay accuracy-related penalties related to their willful violation(s); and (iii) sign an FBAR agreement, if applicable.

If a taxpayer fails to comply with any of these requirements (or any other requirements under the VDP), the IRS may rescind its preclearance for the taxpayer’s VDP application. In this scenario, the taxpayer “may be subject to full examination and all applicable civil and criminal penalties.”

2. Disclosure and Compliance Requirements

The IRS’ proposed changes to the Voluntary Disclosure Practice include a three-month deadline to come into compliance. If finalized, the proposed changes would give VDP-participating taxpayers three months to:

• File all necessary delinquent or amended returns and form, including income tax returns, international information returns, and Reports of Foreign Bank and Financial Accounts (FBARs);
• Pay all applicable taxes, penalties, and interest “in full” and,
• Execute “required agreements” to come into compliance and finalize participation in the VDP.

Taxpayers would generally need to meet these requirements with respect to their federal reporting and payment obligations dating back six years. The IRS refers to this six-year window as the “Disclosure Period” in its proposal.

In its press release, the IRS states that taxpayers who meet these requirements, “will not be recommended for criminal prosecution.” Fundamentally, this is not a change from the current VDP, as taxpayers who come into compliance through the VDP will generally avoid prosecution by doing so. The primary purpose of submitting a voluntary disclosure is to eliminate the risk of criminal prosecution.

3. Penalty Framework and Payment Terms

The IRS’ proposal also includes a penalty framework that is, “intended to be clear, predictable and consistent across all disclosures.” If finalized, the proposed changes would require taxpayers who participate in the VDP to pay the following penalties:

• Failure-to-file penalties for delinquent returns (failure-to-pay penalties would not apply);
• A 20-percent accuracy-related penalty for amended returns;
• Up to a $10,000 penalty for delinquent and amended international information returns (these penalties would apply per return, per year); and,
• Existing penalties for delinquent and amended FBARs (which penalties are subject to adjustments for inflation).

Taxpayers would be required to pay these penalties with respect to all relevant returns and forms from the Disclosure Period. As noted above, taxpayers who fail to pay these penalties within three months of receiving preclearance to participate in the VDP would be subject to criminal prosecution.

Who Should Use the IRS’ Voluntary Disclosure Practice (VDP)?

As noted above, participating in the IRS’ Voluntary Disclosure Practice (VDP) is an option for U.S. taxpayers who need to resolve willful tax law violations. When a taxpayer has willfully violated the Internal Revenue Code, Bank Secrecy Act, Foreign Account Tax Compliance Act (FATCA), or any other statute within the IRS’ enforcement jurisdiction, coming into compliance via an amended or delinquent filing does not remedy the violation. In this scenario, submitting an amended or delinquent return without utilizing the VDP can trigger scrutiny from the IRS—and this scrutiny can potentially lead to criminal charges.

At the same time, as also noted above, there is no guarantee that applying to participate in the VDP will avoid criminal prosecution. As a result, it is critical for taxpayers who have committed willful violations to make informed and strategic decisions about how to deal with the IRS. Since the option to submit a voluntary disclosure goes off of the table once the IRS opens an audit or investigation, taxpayers who have concerns about facing criminal prosecution related to willful violations should consult with experienced tax counsel promptly.

Request a Confidential Consultation with Texas Criminal Tax Lawyer Lawrence Brown

If you have questions about resolving a willful tax law violation through the IRS’ Voluntary Disclosure Practice (VDP), we invite you to get in touch. Our firm represents high-income and high-net-worth taxpayers in significant federal tax controversies. To request a confidential consultation with Texas criminal tax lawyer Lawrence Brown, call us at 888-870-0025 or tell us how we can reach you online today.