The IRS Criminal Investigation Voluntary Disclosure Practice: Form 14457, the two-part process and the penalty framework

What the VDP is and is not

IRM 9.5.11.9 describes the practice as a long-standing IRS practice that gives taxpayers with criminal exposure a way to come into compliance and potentially avoid prosecution. Two sentences from the same section frame every conversation with a client about it. First, “A voluntary disclosure does not guarantee immunity from prosecution.” CI weighs the disclosure along with every other factor when deciding whether to recommend prosecution. Second, “The Voluntary Disclosure Practice creates no substantive or procedural rights for taxpayers.” CI's decisions on timeliness, completeness, truthfulness, rejection and revocation are not subject to administrative or judicial review.

The practice is only for willful conduct. The IRS.gov VDP page puts the test plainly: “Willfulness is not simply making a mistake. It is the intentional, purposeful, deliberate act to hide income or assets and therefore evade filing requirements or payment of tax.” The Form 14457 instructions say a taxpayer should not use the practice if they committed no acts rising to the level of a tax or tax-related crime. A client whose narrative describes negligence or carelessness will be declined; the IRS FAQ states that a narrative that does not fully describe willful noncompliance results in denial of the clearance request. Non-willful offshore cases belong in the streamlined procedures; omitted information returns with reasonable cause belong in the delinquent submission procedures; the IRS FAQ warns that the streamlined procedures “do not absolve taxpayers of criminal liability if IRS Criminal Investigation determines their conduct was willful.”

The practice is also closed to illegal source income. Income from an activity legal under state law but illegal under federal law (the IRM's example in 4.63.3.18.1 is cannabis) is illegal source income for this purpose.

Eligibility and the timeliness test

A disclosure must be truthful, timely and complete, and the taxpayer must cooperate in determining the liability, cooperate in investigating any professional enablers, submit all required returns and reports for the disclosure period, and make arrangements to pay in full. Timeliness is the test most often lost. Under IRM 9.5.11.9 a disclosure is timely only if it is received before:

• the IRS has commenced a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to;
• the IRS has received information from a third party (the IRM lists an informant, another government agency or the media; the form instructions add a John Doe summons and a whistleblower) alerting it to the taxpayer's noncompliance; or
• the IRS has acquired information directly related to the noncompliance from an enforcement action such as a search warrant, summons or grand jury subpoena.

Form 14457 Part I asks four disqualifying questions for the taxpayer, spouse and related entities: whether the IRS has given notice of an examination or criminal investigation, whether there is an IRS criminal investigation, whether any other law enforcement authority is investigating, and whether any income is from an illegal activity. IRM 9.5.11.9.4 says a yes to any of them may make the taxpayer ineligible, and a false statement on any material matter on any part of the form can end eligibility or lead to revocation. Part I also requires disclosure of any notice of deficiency for a year in the anticipated period, any federal tax litigation, and whether the taxpayer believes the IRS already has information about the liability. Prior OVDP participation with overlapping years also bars the practice, and a taxpayer who made an earlier voluntary disclosure gets enhanced CI review because post-disclosure compliance is a condition of the practice.

The two-part Form 14457 process

Form 14457 (Rev. July 2025) is submitted in two separately filed parts. Both go to CI by eFax at 844-253-5613 or by email to vdp@ci.irs.gov; the instructions encourage eFax and, for email, encryption with the password sent separately. Nothing else goes to CI: the instructions say not to send payments or returns with either part.

1. Part I, Preclearance Request. Identifies the taxpayer, spouse, representative, every related entity, every noncompliant financial account and every digital asset, and answers the disqualifying questions. CI checks eligibility, legal source and timeliness. The instructions warn that preclearance takes at least 30 days and may take 60 days or longer. CI answers in writing with a preclearance letter that carries a case control number.
2. Part II, Voluntary Disclosure Application, within 45 days. IRM 9.5.11.9.1: “Part II cannot be submitted without first obtaining preclearance and a case control number in the written confirmation of preclearance.” One 45-day extension may be granted on written request to vdp@ci.irs.gov; the IRS.gov page says only one 45-day extension is permitted. If the client cannot meet the extended date, the IRS's answer is to withdraw.
3. Completeness check. A Part II without a complete narrative is incomplete. Taxpayers “will be given an opportunity to supplement their submissions within 14 days of notice by an incomplete letter”; if the 14 days pass, CI notifies them the disclosure was not preliminarily accepted.
4. Preliminary acceptance. CI issues a Preliminary Acceptance Letter and forwards the file to Compliance Support, Development and Communication (CSDC) for assignment to a civil examiner, who sends an initial contact letter. Status questions after this point go to lbieefaustindisclosure@irs.gov; procedural questions go to the VDP hotline at 904-661-3350.

Representation. A separate Form 2848 is required for each taxpayer and entity in the disclosure, listing all years in the disclosure period and every matter involved (income, employment or excise tax, international information return penalties, FinCEN Form 114). CI does not accept a combined list of taxpayers on one form, and corresponds only with the representative unless line 6l of Part I asks for the taxpayer to be copied by email. A related entity gets VDP terms only if it makes its own disclosure (Part I, line 7c). For decedents, a Form 56 with letters testamentary is required.

The Part II narrative

IRM 9.5.11.9.1 sets the content: a narrative signed under penalties of perjury by the taxpayer (and spouse, for a joint disclosure) with specific facts telling the complete story of the willful noncompliance. It must cover the taxpayer's personal and professional background, identify every professional advisor who rendered services from the inception of the noncompliance, and give “the whole story with all favorable and unfavorable facts including the entire history of noncompliance from the inception through the present.” Once the civil case opens, the taxpayer must give the examiner a statement acknowledging the willful failure to comply.

The disclosure period

The default is six years: the six most recent tax periods for which a return was filed or was due (including extensions) as of the date Part II is received. Because the measuring date is the Part II received date, not Part I, the period can shift while preclearance is pending. IRM 4.63.3.18.3 gives the example: Part I filed September 30, 2020 with a 2013 to 2018 period while the 2019 return sat on extension; Part II filed December 21, 2020, after the extended due date, so the period shifts to 2014 to 2019. The instructions tell applicants to allow up to 60 days for preclearance when estimating the period. A return filed on extension before the extended due date is treated as due on the filing date.

Three exceptions apply:

FBARs for the period must be e-filed with FinCEN and confirmation given to the examiner. For foreign entities, all information returns for the period must be filed; a claim that an entity was abandoned does not excuse post-dissolution years. Returns go to the examiner, not the campus: filing them directly can delay the case and trigger automatic penalty assessments.

The civil penalty framework

The framework is the reason to use the VDP rather than a quiet disclosure. The instructions state the rule: “A civil fraud penalty or a fraudulent failure to file penalty, sections 6663 or 6651(f), respectively, will apply to at least one year of all voluntary disclosures.” IRM 4.63.3.18.2 adds that it is asserted on the year with the highest tax deficiency, and that the single penalty “is in lieu of IRC 6662 accuracy-related penalties and IRC 6651(a)(1) and IRC 6651(a)(2) delinquency penalties.” The estimated tax penalty under IRC 6654 still applies to every year because it is treated as a proxy for interest. See the civil fraud penalty guide for the 75 percent computation.

On information return penalties the instructions are short: “Penalties for the failure to file information returns will not be automatically imposed.” IRM 4.63.3.18.13.2 tells examiners that where material FBAR penalties apply, examiners should consider not asserting IIR penalties, and that penalties a campus assessed automatically on delinquent returns the taxpayer filed directly should be reviewed and abated where unwarranted. For the employment tax example involving payees, the instructions describe a taxpayer who failed to obtain payee TINs before making reportable payments or failed to withhold when required: one fraud or fraudulent failure to file penalty on the highest year (non-filed Forms 945), failure to deposit on all periods. The backup withholding rules behind that example are covered at TIN Comply's backup withholding guide.

Deviations. IRM 4.63.3.18.2.1 allows a deviation only in rare and extraordinary cases, on clear and convincing evidence, and the IRS “will not consider deviating from the standard penalty structure due to a fraud penalty's negative impact on social status, political aspirations, or professional licensure.” The request is made in writing to the examiner, who elevates it with the exam team's position to a VDP analyst and counsel; “Only VDP counsel can approve a penalty deviation request.” A deviation, if granted, substitutes accuracy-related or delinquency penalties for every year and non-willful FBAR penalties for every year in place of the single fraud penalty and willful FBAR penalty. Supervisory approval under IRC 6751(b) still applies to each penalty.

What happens in the civil examination

IRM 4.63.3.18 says voluntary disclosures follow standard examination procedures with a few modifications. The examiner expects the package ready at first contact: delinquent and amended returns and information returns, statute extensions for all income tax and FBAR years, books and records including accountant workpapers, bank statements and account opening documents, professional advice received, promoter materials, and payment. The cooperation list in IRM 4.63.3.18.1 includes prompt responses to IDRs, interviews and access to related-party witnesses, statute extensions on Form 872 and for FBAR, bank secrecy waivers in offshore cases, agreement to all of the examiner's adjustments to income and deductions, and resolution of everything by agreement. Agreed Title 26 cases close on a Form 906 closing agreement; the IRM notes fraud referral procedures are not required for an agreed VDP case closing on a Form 906, but regular referral procedures return if the case goes unagreed or acceptance is revoked.

Payment, collection alternatives and revocation

Full payment of tax, interest and penalties is the baseline. A taxpayer who cannot pay by case closing must say so in Part II and attach a proposed arrangement with a completed Form 433-A or Form 433-B; the examiner then coordinates a collection referral, and the taxpayer has up to 60 days to answer the revenue officer's requests or the request is rejected. The burden is on the taxpayer to show inability to pay from a full disclosure of domestic and foreign assets. Any closing agreement with less than full payment requires a waiver of collection due process rights under IRC 6320 and 6330 for every period in the agreement, and offers in compromise are not considered pre-assessment. See installment agreements for the terms that would follow.

Revocation. If the taxpayer does not cooperate, the examiner sends a Request for Revocation of Preliminary Acceptance memo to CI; if CI concurs it issues a Revocation Letter (IRM 9.5.11.9.7). Materially false statements on Form 14457 go through a senior analyst to the Director, Financial Crimes, and the matter is referred to CI for criminal evaluation through the fraud referral process. After revocation the examiner may expand to all years and assert all penalties to the maximum; the IRM notes the taxpayer keeps the right to appeal the civil determinations.

The December 2025 proposal

On December 22, 2025 the IRS opened a 90-day comment period, ending March 22, 2026, on a revised VDP. As of October 2026 the IRS.gov VDP page still describes it as a proposal, and the release said that “If finalized, the revised procedures are expected to take effect six months after publication of the final terms.” The current procedures above continue to apply, and the IRS states that the proposal creates no rights or expectations for taxpayers who applied before it is finalized. The proposed terms, for planning purposes:

• Conditional approval after preclearance, then three months to file all amended or delinquent returns, information returns and FBARs, pay in full and sign the agreements. Full payment within three months is required; no payment arrangements.
• A six-year disclosure period, with no longer period for non-filers.
• A standardized penalty framework: failure to file penalties for each delinquent year (no failure to pay penalty); a 20 percent accuracy-related penalty for each amended year; FBAR penalties per year subject to inflation adjustment; international information return penalties up to $10,000 per return per year. “No penalty deviations will be permitted.”
• A signed closing agreement waiving statutes of limitations, and the IRS says not every disclosure would get a full examination.

The IRS FAQ says a taxpayer whose current application has not been preliminarily accepted may tell vdp@ci.irs.gov of an intention to switch; one accepted but not yet contacted by an examiner may contact lbieefaustindisclosure@irs.gov; one who has already answered the examiner's document request stays in the current version.

Questions practitioners ask