Form 14457 IRS Voluntary Disclosure Practice Update: 6 Facts

Form 14457 IRS Voluntary Disclosure Practice Update

Unlike the Streamlined Filing Compliance Procedures or FBAR & FATCA Delinquency Procedures, the IRS Voluntary Disclosure Practice (VDP) has a specific, standardized pre-clearance letter that is required to be submitted before a US Taxpayer is approved for entry into the IRS Voluntary Disclosure Program. The Form is referred to as IRS form 14457, Voluntary Disclosure Practice Preclearance Request and Application. This form was previously part of the Offshore Voluntary Disclosure Program submission packet, but the form was modified in 2019 — and is now updated again in 2022. Overall, the changes to the disclosure form are not that major. Taxpayers are still required to submit the form, and the program is still aimed at taxpayers who are willful. One important change to the form though is a more specific information gathering requirement and disclosure for matters involving cryptocurrency — which follows the IRS’ public statement back in 2020 in which they stated that there would not be a specific, standalone cryptocurrency amnesty program. Let’s go through the basics of the changes.

IRS Criminal Investigation Now Accepts Photocopies, Facsimiles, and Scans of Taxpayer Signatures.

This is very important, because as a result of Covid –– along with the reduced funding for the Internal Revenue Service — the IRS has been unfortunately very behind in responding to mail inquiries. Just imagine how much mail the Internal Revenue Service receives on a daily basis and then factor into it the fact that the offices were closed for several months, and staff is low — and still working from home in several locations. As a result of accepting photocopies, facsimiles, and scans, taxpayers have a better opportunity (but are not guaranteed) of getting a more timely response.

Taxpayers Can Send Form 14457 via eFax to 844-253-5613 to ReduceMailing and Processing Times.

This update reflects that the IRS understands that it should have a specific efax number (presumably) for voluntary disclosure submissions only.

Previously, Part II of this Form Had to be Mailed.

Mailing documents to the IRS can often feel like submitting forms into a black hole, so the fact that part II — which is much more detailed than part one — can be faxed is a good sign of increased efficiency.

An Expanded Section for Reporting Virtual Currency on Form 14457

The Internal Revenue Service, FinCEN, and Department of Justice, in general, are taking a heavy hand on matters involving virtual currency transactions. If a taxpayer has undisclosed virtual currency, they should definitely consider submitting to the program because all signs point toward the IRS issuing high fines and penalties against taxpayers who are out of compliance.

A Penalty Structure for employment tax and estate and gift issues.

Having a standard, established penalty structure makes it easier for Taxpayers to properly assess the potential financial damages — and better evaluate the pros and cons of the program for these types of disclosure matters.

A Check-Box for Inability to Pay in Full on Form 14457 as well.

Some taxpayers want to get into compliance but are simply not financially able to make a full payment at the time of submission. By allowing for a check box for inability to pay in full — it helps taxpayers safely get into compliance — even if they’re not financially able to submit full payment. While the Taxpayer waives any CDP rights (Collection Due Process aka Form 12153), the IRS/Office of Appeals was never inclined to grant a CDP for a VDP applicant in the first place.

IRS Notice of New Form 14457

The IRS published article is reproduced below:

• • • The updates reflect input from practitioners and stakeholders and take into account trends in the type of financial asset that taxpayers hold.

    • “This is an important form and process for people who recognize it’s better to step forward and address their tax situations head-on, before facing IRS enforcement action,” said Doug O’Donnell, Deputy Commissioner Services and Enforcement. “The revised form includes a number of updates, and we encourage people to review the guidelines and consult a trusted tax professional.”

    • Thousands of taxpayers have used the Voluntary Disclosure Practice since its inception. It serves as a compliance option for taxpayers who have potential criminal exposure and wish to come into compliance with the tax laws. Those making such disclosure are still subject to civil examination and the payment of all applicable taxes, interest and penalties.

    • Taxpayers who did not commit any tax or tax-related crimes and wish to correct mistakes or file delinquent returns should consider other options available to comply with their tax and reporting obligations. The IRS encourages taxpayers to consult with professional tax or legal advisors in determining which option is the most appropriate.

    • A taxpayer’s voluntary disclosure must be timely, accurate and complete. The taxpayer must also cooperate with the IRS in determining the correct tax liability, and make full payment of the tax, interest and any applicable penalties.

    • Cooperation includes full payment of all tax, interest and penalties. A taxpayer who is unable to make full payment may request that the IRS consider other payment arrangements. If a taxpayer anticipates they cannot pay the total amount of tax, interest and penalties required, they must disclose this and submit a proposed payment arrangement and a completed, and executed, Collection Information Statement (Form 433-A). The burden is on the taxpayer to establish inability to pay, to the satisfaction of the IRS, based on full disclosure of all assets and income, domestic and foreign, under the taxpayer’s control.

    • For more information on the Voluntary Disclosure Practice, as well as other options to come into compliance with the law please visit:

• • • • IRS Criminal Investigation Voluntary Disclosure Practice

      • IRM 9.5.11, Investigative Process – Other Investigations

      • IRM 4.63.3, Withholding and International Individual Compliance – Offshore Voluntary Disclosure Program, Streamlined Filing Compliance Procedures and Voluntary Disclosure Practice

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