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On Dec. 22, 2025, the IRS announced several proposed changes to its voluntary disclosure program intended to address many of the issues that make the current program ineffective. These proposed updates to the program are expected to take effect later this year.
By Kevin Sweeney and Katherine Wheeler
The IRS Voluntary Disclosure Program is designed to encourage non-compliant US taxpayers to voluntarily self-identify and report historical tax deficiencies. Taxpayers who participate in this Program pay back taxes, penalties, and interest in exchange for effective amnesty from criminal prosecution. The Program allows the IRS to collect tax that may otherwise have gone unnoticed, which helps close the tax gap.
In recent years, tax practitioners and taxpayers have noted concerns with the current framework of the Voluntary Disclosure Program. It is largely viewed as unfavorable to taxpayers who are seeking to come forward and self-identify their tax noncompliance because of the harsh penalty structure and filing requirements. Even the National Taxpayer Advocate has raised concerns with the current Program. In the Taxpayer Advocate Service’s 2024 Annual Report to Congress, it identified IRS Criminal Investigation’s Voluntary Disclosure Program as one of the most serious problems taxpayers faced and recommended changes intended to encourage taxpayer participation. Because of these challenges, the IRS only processed 161 voluntary disclosures between September 2018 and August 2024.
On December 22, 2025, the IRS announced several proposed changes to its Voluntary Disclosure Program intended to address many of the issues that make the current Program ineffective. These proposed updates to the Program are expected to take effect later this year.
In its current framework, taxpayers who seek to participate in the Program must disclose a significant amount of potentially incriminating information to get clearance to enter the Voluntary Disclosure Program. Given that clearance is not guaranteed, this information could be used against a taxpayer in the event he or should was denied entry into the Program by the IRS. In the event a taxpayer is successfully cleared to participate in the Program, he or she will be subject to a civil examination, must file up to six years of corrected tax returns, and must full pay all taxes, penalties, and interest due within three months. Pursuant to the terms of the Program, Taxpayers are assessed failure to file and failure to pay penalties on any delinquent returns as well as a 75 percent civil fraud penalty on the tax year with the highest liability. If applicable, the IRS also assesses willful Report of Foreign Bank and Financial Accounts (“FBAR”) penalties up to a maximum of 50 percent of the highest balances in the unreported accounts. In addition to these penalties, IRS examiners have discretion to impose additional penalties for delinquent or incomplete international informational returns.
In the recently updated Voluntary Disclosure Program framework, the IRS has proposed significant changes to the penalty framework of the Program. Instead of a 75 percent civil fraud penalty, the IRS will impose a 20 percent accuracy-related penalty for each year. Additionally, although the IRS will impose failure to file penalties, it will not impose failure to pay penalties. With respect to international penalties, the IRS has indicated that it will assert FBAR penalties for each year, but international informational return reporting penalties will be limited to $10,000 per return, per year. Although the Program is ambiguous about whether imposed FBAR penalties will be willful, the fact that the FBARs would be made on an annual basis suggests that they will likely be limited to non-willful penalties. With respect to payment of taxes, the proposal indicates that taxpayers must also full pay tax, penalties, and interest within three months.
If implemented, the proposed changes are likely to make the Voluntary Disclosure Program more attractive to noncompliant taxpayers by reducing taxpayers’ penalty exposure. Notwithstanding these benefits, there are still unresolved issues that could pose significant risk to taxpayers such as whether the IRS will impose willful FBAR penalties, whether it will limit the amount of information a taxpayer must provide to the IRS before acceptance, and whether taxpayers who full pay will be permitted to enter into installment agreements to spread payments out over time.
Taxpayers who have not filed for multiple years and/or failed to report significant income, especially those whose financial affairs could be perceived as concealing information from the IRS and those whose circumstances could cause the IRS to question whether the taxpayer’s noncompliance was willful, should consider proactively seeking legal advice about these issues. An experienced tax controversy attorney can assist a taxpayer in contemplating whether the Voluntary Disclosure Program is appropriate for his or her situation and help navigate this sensitive process. With a successful voluntary disclosure, noncompliant taxpayers can bring themselves back into compliance, avoid harsh penalties that may otherwise apply, and avoid criminal prosecution.
Reprinted with permission from the June 10, 2026, edition of The Legal Intelligencer © 2026 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.