Coming Out of the Dark Episode 4: IRS Voluntary Disclosure Practice - The Last Off-Ramp Before Criminal Exposure

A taxpayer facing willful noncompliance can't rely on streamlined filing to solve their problem. Certifying non-willfulness doesn't just fail to solve the problem; it creates a new one, since a false certification carries its own penalty exposure.

For taxpayers weighing criminal exposure against a negotiated civil resolution of their tax issue, the IRS Voluntary Disclosure Practice (IRM 9.5.11.9) offers an alternative path. This session looks at the Form 14457 filing, the six-year lookback period, and the mechanics behind the 75% civil fraud penalty applied to the single highest-liability year. It also addresses how FBAR willfulness penalties layer on top of that resolution, and the timing rule that shuts the door on a disclosure once the IRS already has notice.

Agenda:

• Distinguish willful from non-willful conduct involving tax issues and correctly triage a client into Streamlined Filing Compliance Procedures (SFCP) vs. the Voluntary Disclosure Practice (VDP).
• Identify what IRS "awareness" events (exam, summons, whistleblower referral, etc.) foreclose VDP eligibility.
• Understand Form 14457 Parts I and II, including what the Part II narrative must contain to avoid rejection.
• Calculate the VDP civil resolution – the 75% fraud penalty on the highest-liability year plus layered FBAR penalties.
• Explain the exposure created by a false non-willfulness certification under SFCP.
• Advise clients on VDP's limits