The IRS on December 22, 2025 proposed changes to its Voluntary Disclosure Practice, the long-standing route for taxpayers with willful noncompliance to come forward and avoid a criminal referral. The proposal sets a uniform penalty structure, a six-year disclosure period and a firm three-month deadline to file and pay. A 90-day comment period runs until March 22, 2026. For affluent families with undeclared foreign accounts, unreported business income or missed international filings, the draft rules would make the cost of coming forward easier to estimate in advance.
What would change
Under the proposed framework, a taxpayer submits Form 14457, the preclearance request and application, electronically. The disclosure must identify every year of noncompliance and describe the willful conduct fully and accurately. After preclearance, the IRS sends a conditional approval letter. Within three months of that letter, the taxpayer must:
- file amended or delinquent income tax returns, international information returns and Reports of Foreign Bank and Financial Accounts (FBARs), as applicable;
- pay all tax, penalties and interest in full;
- sign a closing agreement waiving statutes of limitations, agree to accuracy-related penalties and sign an FBAR agreement if relevant.
The disclosure period generally covers the most recent six years. Taxpayers who meet every requirement will not be recommended for criminal prosecution. Those who miss the terms can lose conditional approval and face a full examination with all civil and criminal penalties available. The IRS says not every disclosure will be fully examined.
The proposed penalty menu
- Delinquent income tax returns: failure-to-file penalties for each year in the period; no failure-to-pay penalty.
- Amended income tax returns: a 20% accuracy-related penalty for each year.
- FBARs: penalties per year, subject to annual inflation adjustments.
- International information returns: up to $10,000 per return, per year.
The IRS describes the goal as a structure that is clear, predictable and consistent across disclosures, and as an added incentive for noncompliant taxpayers to come in.
The after-tax math
Example: a taxpayer failed to report $50,000 a year of income from a foreign account for six years, and also missed one required international information return each year. The figures below use round numbers, assume a 37% federal rate and exclude interest and FBAR penalties, whose amounts depend on inflation-adjusted schedules.
| Item | Six-year total |
|---|---|
| Unreported income | $300,000 |
| Additional federal tax at 37% | $111,000 |
| 20% accuracy-related penalty on that tax | $22,200 |
| Information return penalties, up to $10,000 each | up to $60,000 |
| Total before interest and FBAR penalties | up to $193,200 |
All of it would be due within three months of conditional approval, so liquidity planning becomes part of the decision.
Who is affected
The practice is aimed at willful noncompliance. Taxpayers whose problems stem from negligence or misunderstanding often have other options, and advisers typically distinguish those cases before recommending any program. People with dual citizenship, inherited foreign accounts or overseas business interests are among those most likely to evaluate the changes. A second look is also warranted by anyone who has already applied under the current practice, because the IRS has signaled how pending applicants can move to the new terms.
Moves to discuss with your advisor
Because a voluntary disclosure is an admission of willful conduct, households in this situation generally involve a tax attorney before any filing, often working alongside a CPA to reconstruct records. It is worth modeling the six-year cost under the proposed menu against the exposure of doing nothing, including criminal risk, and checking whether cash is available to pay within three months.
What to watch
Comments can be emailed to vdp@ci.irs.gov with the subject line "PROPOSED VDP PUBLIC COMMENT" through March 22, 2026. If the IRS finalizes the terms, the revised procedures are expected to take effect six months after publication, which leaves a window in which current rules still apply.
Sources
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
