IRS Voluntary Disclosure Program: What’s Changing in 2026?

The IRS Voluntary Disclosure Program (VDP) is undergoing changes expected in late 2026. This program allows individuals with undeclared income or assets to come forward and correct their tax filings. While the proposed updates aim to simplify the process and potentially reduce certain penalties, it’s important to understand that the VDP may still carry risks, particularly concerning criminal prosecution. Taxpayers considering this program should carefully evaluate their situation and the potential implications.

Proposed Changes to the IRS Voluntary Disclosure Program

The IRS is working on a revised Voluntary Disclosure Program, with an official announcement anticipated later in 2026. A draft of these changes suggests a streamlined application process and a reduction in one specific civil penalty. However, the core purpose of the program—to encourage voluntary disclosure of tax noncompliance—remains, and it does not guarantee immunity from criminal charges.

The proposal aims to replace the current 75% civil-fraud penalty with a 20% accuracy-related penalty for each year within the six-year disclosure period. This could lead to a lower civil penalty for eligible participants. Additionally, after a conditional approval, taxpayers would likely have a three-month deadline to file delinquent or amended returns, pay any outstanding amounts, and sign necessary agreements.

Key Adjustments in the Revised Program

One significant change in the proposed overhaul is the removal of the willfulness checkbox from Form 14457. Previously, this checkbox required taxpayers to certify their conduct as an “intentional, purposeful, or deliberate violation” of tax law. Critics argued that this explicit statement could be used as evidence in a criminal case. By removing this checkbox, the IRS would avoid asking applicants to make such a direct admission. However, the facts disclosed in the application could still suggest deliberate conduct, meaning the risk of criminal exposure is not entirely eliminated.

The revised process intends to combine the preclearance and preliminary acceptance stages into a single application. This means taxpayers would submit one form instead of navigating multiple steps. Upon receiving conditional approval, a three-month compliance period would begin. During this time, individuals would generally need to file any required amended or delinquent returns, pay all taxes, penalties, and interest due, and finalize any required agreements. The IRS is targeting a 120-day resolution period for accepted cases, though this is an aim and not a guarantee for every situation.

Understanding Penalty Relief and Foreign Reporting

While the proposed changes could lower the civil penalty from 75% to 20% for each year in the six-year disclosure period, foreign-account and information-reporting penalties would be handled separately. Amended Reports of Foreign Bank and Financial Accounts (FBAR) could still incur per-year penalties that are adjusted for inflation. Penalties for other international information returns might be capped at $10,000 per year. These caps do not eliminate the total financial obligation for a taxpayer who has multiple years of noncompliance, unpaid taxes, interest, and various reporting requirements.

Challenges for Participants

The proposed short deadline for compliance, coupled with the payment terms, could present significant hurdles for some taxpayers. Reconstructing financial records for multiple years while simultaneously preparing tax returns and calculating potential foreign reporting penalties can be a demanding task. Furthermore, the requirement to pay all taxes, penalties, and interest in full within the compliance period could be difficult for individuals with limited financial resources. Those who can afford to pay upfront might be better positioned to meet this condition and secure the program’s potential criminal protection.

The American Bar Association has raised concerns that the three-month deadline might be unrealistic, especially for those who need to gather extensive records, prepare complex returns, calculate offshore penalties, secure funds, and negotiate payment plans. Applicants could find themselves managing several demanding tasks simultaneously under a tight schedule.

Eligibility and Protection Await Final IRS Announcement

The final version of the IRS Voluntary Disclosure Program will determine the specific language of the application, the exact eligibility criteria, the deadlines, and the extent of criminal protection offered. Until the official announcement, the proposed penalty reductions and process changes are not set in stone. Potential applicants must carefully consider whether their past actions might be interpreted as willful, if they can realistically complete all required filings within the proposed timeframe, and if they can afford to pay their total tax, interest, and penalty obligations. Exploring alternative options, such as a nonwillful certification or simply filing amended returns, may also be appropriate depending on the specific circumstances and the taxpayer’s ability to meet the program’s requirements.

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