IRS Voluntary Disclosure Practice in 2026: The Successor to OVDP for Willful Violations

The Offshore Voluntary Disclosure Program (OVDP) closed on September 28, 2018. What replaced it is the Voluntary Disclosure Practice (VDP), a domestic and offshore option administered by IRS Criminal Investigation (IRS-CI) for taxpayers with willful, criminal tax exposure.

VDP covers any willful noncompliance, offshore or domestic, and it existed as a general practice long before OVDP ever did. In 2026, current VDP rules under IRM 9.5.11.9 govern every case filed today, while a separate set of proposed revisions, opened for public comment on December 22, 2025 and closed March 22, 2026, would change the penalty structure once finalized. The IRS has stated that the proposal creates no rights until it takes effect.

Is IRS Voluntary Disclosure Practice in 2026 Really the Successor to OVDP?

No, VDP is the compliance option available to willful taxpayers now that OVDP is gone, but it is a different tool with a different scope, built on a practice that predates OVDP by decades.

What Changed When OVDP Closed in 2018?

OVDP was a standalone offshore program that let taxpayers disclose foreign accounts for a fixed 27.5% (or 50%, in flagged-institution cases) penalty on the highest account balance, covering up to eight years of returns. Once it closed, that specific penalty structure and the eight-year lookback disappeared with it. Taxpayers with willful offshore exposure did not lose an option, though. They shifted to the general voluntary disclosure practice that IRS-CI had operated since long before OVDP existed.

How the Current VDP Replaced OVDP

The current framework took effect in November 2018, weeks after OVDP's closing date. It folded offshore disclosures into the same track used for domestic willful noncompliance, unreported income, false returns, and unfiled information returns. Offshore disclosure after OVDP closed now runs through the identical Form 14457 process used for a domestic case; there is no separate offshore intake form anymore.

Who Oversees the Program

IRS Criminal Investigation administers VDP, not a civil compliance unit. Every Form 14457 goes to CI-Headquarters-Global Operations Policy & Support for review, and only after preliminary acceptance does a case move to a civil examiner.

Who Should Consider IRS Voluntary Disclosure in 2026?

Taxpayers whose failure to file, pay, or report was intentional, not accidental, are the intended audience for VDP. The IRS defines willfulness as an intentional, deliberate act to hide income or assets to avoid filing requirements or tax payment.

Willful FBAR Violations

A willful FBAR disclosure program applies when a taxpayer knowingly failed to file FinCEN Form 114 for foreign accounts exceeding $10,000 in aggregate value. FBAR filing requirements apply to signature authority as well as ownership, so a person managing a foreign business account for someone else can still trigger the obligation. Willful FBAR penalties under current guidance run as high as 50% of the account's peak balance for one year in the disclosure period.

Unreported Offshore Income

Interest, dividends, rental income, and business income earned abroad and never reported on a U.S. return fall squarely inside VDP's scope when the omission was deliberate. FATCA reporting requirements now mean most foreign banks already report U.S. account holders to the IRS, which shrinks the window for coming forward before the IRS finds the account on its own.

Undisclosed Foreign Accounts

A foreign bank account, brokerage account, or foreign pension that was never reported on Form 8938 or an FBAR, and where the taxpayer knew reporting was required, fits the VDP profile. Quiet disclosure FBAR risks are filing amended returns or late FBARs without going through VDP, or the Streamlined Procedures leaves willful conduct exposed, since the IRS reviews these filings for irregularities and does not treat a quiet correction as protection from prosecution.

Cryptocurrency and Digital Asset Reporting Issues

Digital asset transactions, including crypto-to-crypto trades and unreported gains, fall under the same willfulness standard as any other unreported income. The IRS has expanded its digital asset enforcement significantly since 2021, and taxpayers who intentionally left crypto gains off their returns face the identical VDP eligibility analysis as someone who hid a foreign brokerage account.

Who Does NOT Qualify for the Voluntary Disclosure Practice?

Taxpayers whose conduct was not willful, or who are already under IRS scrutiny, are excluded from VDP by design.

Non-Willful Taxpayers

If the failure was a genuine mistake, negligence, or a misunderstanding of a filing rule, VDP is the wrong tool. The IRS explicitly states that a narrative describing mere negligence or carelessness will be denied at the clearance stage. Non-willful taxpayers should instead consider amended returns, delinquent return procedures, or the Streamlined Filing Compliance Procedures.

Taxpayers Already Under IRS Investigation

A disclosure is only timely if it arrives before the IRS opens a civil exam or criminal investigation, before a third party alerts the IRS to the noncompliance, or before the IRS gets information about it through an enforcement action such as a summons or search warrant. Once any of those triggers happens, VDP is off the table for that taxpayer.

Situations Better Suited for Other Programs

Taxpayers with illegal-source income cannot use VDP at all, since the practice is limited to income from legal sources. Someone who simply forgot to report a small foreign account, with no intent to conceal it, is generally better served by an amended return or the Streamlined Procedures, both of which carry far lower penalty exposure than VDP's fraud-based framework.

How the IRS Voluntary Disclosure Process Works

The process runs through Form 14457 in two parts, followed by a civil examination that converts the disclosure into a final resolution.

Step 1: IRS CI Preclearance (Form 14457 Part I)

Part I asks whether the taxpayer, spouse, or related entities are already under examination or investigation, and whether any income comes from illegal sources. CI reviews this submission and issues a written preclearance decision. Preclearance confirms eligibility to proceed; it does not guarantee that the disclosure itself will be accepted.

Step 2: Complete Disclosure (Form 14457 Part II)

Part II requires a signed, sworn narrative describing the full history of the noncompliance, every professional advisor involved, and both favorable and unfavorable facts. An incomplete narrative gets a 14-day window to fix before CI denies preliminary acceptance outright.

How Long Does A Taxpayer Have To Submit Part II?

A taxpayer has 45 days from the date of the preclearance letter to submit Part II. One additional 45-day extension is available on written request to the IRS's voluntary disclosure email address, but no more than one extension will be granted under any circumstances.

Step 3: Civil Examination

Once CI issues a preliminary acceptance letter, the case moves to a civil examiner who requests supporting documents and a signed acknowledgment of the willful failure to comply. The taxpayer must cooperate fully; failure to do so can trigger a request to revoke the preliminary acceptance and send the matter back to CI for possible criminal evaluation.

Final Resolution and Payment

The case closes with full payment of tax, interest, and assessed penalties, generally through a closing agreement. Full payment, or a secured full-pay installment agreement, is a condition of the practice, not an optional add-on.

Penalties Under the IRS Voluntary Disclosure Practice

Civil fraud penalty: currently 75% of the underpayment for the single tax year with the highest liability in the disclosure period.

Willful FBAR penalty: currently up to 50% of the highest aggregate foreign account balance for one year in the disclosure period, though examiners retain discretion to apply the non-willful penalty instead.

Interest: assessed on all unpaid tax and penalties for the full disclosure period.

Proposed 2026 revision: would replace the 75% fraud penalty with a 20% accuracy-related penalty per year, and would apply FBAR penalties per year, subject to inflation adjustment, rather than as a single-year assessment. The IRS has not confirmed whether those FBAR penalties will sit at the $10,000 non-willful level.

No penalty negotiation once conditionally approved: the IRS has stated that no deviations from the assessed penalty framework will be permitted after conditional approval under the proposed structure.

These figures sit well above what a non-willful taxpayer pays under the Streamlined Procedures, which is the tradeoff for the protection VDP offers against a criminal referral.

How Many Years Does IRS VDP Require You to Disclose?

The disclosure period generally covers the six most recent tax years for which the filing due date has passed.

Does Current VDP Automatically Mean Six Years?

Not automatically in every case, but six years is the standard scope under current guidance. The exact years included shift based on when Part II is actually received by CI, since the lookback runs backward from that submission date rather than from the date the taxpayer first contacted the IRS or filed Part I.

What Happens If the Willful Conduct Goes Back 10, 15, Or 20 Years?

The disclosure filings themselves are typically limited to the six-year period, but the examiner retains authority to expand the scope of the civil examination if the case does not resolve through agreement, or if the facts uncovered during the exam point to a longer pattern of noncompliance. A taxpayer with a decade or more of willful conduct should expect the examiner to ask about, and potentially document, years outside the six-year filing window even if formal returns are not required for all of them.

Does IRS VDP Guarantee Immunity From Criminal Prosecution?

No. The IRS states directly that a voluntary disclosure does not automatically guarantee immunity from prosecution.

A timely, truthful, and complete disclosure is one factor CI weighs, alongside every other fact in the case, when deciding whether to recommend prosecution to the Department of Justice. In practice, this functions as:

A structured mechanism for coming forward before the IRS finds the conduct independently,

One input among several that CI considers in its charging recommendation,

A route that has historically limited criminal-prosecution exposure for cooperative, complete disclosures, and

A path back to full civil compliance, provided the taxpayer meets every procedural requirement.

The Voluntary Disclosure Practice creates no substantive or procedural right to non-prosecution, and CI's determinations on timeliness, completeness, and truthfulness are not subject to administrative or judicial appeal.

What Happens If You Don't Make a Voluntary Disclosure?

Willful noncompliance that goes undisclosed carries escalating exposure the longer it sits unaddressed.

Increased IRS Enforcement

FBAR and FATCA compliance data-sharing agreements with foreign banks give the IRS visibility into offshore accounts that did not exist a decade ago. Waiting increases the odds the IRS identifies the account through third-party reporting before a taxpayer comes forward, which cuts off VDP eligibility entirely.

Criminal Investigation Risks

Criminal tax exposure for offshore violations includes felony charges under 26 U.S.C. § 7201 for tax evasion and § 7206 for filing false returns, alongside willful FBAR violations that carry their own separate criminal penalties. These are prosecutable independent of any civil penalty assessment.

Large Civil Penalties

Once the IRS identifies unreported income or accounts on its own, the taxpayer loses access to VDP's structured penalty framework and faces standard civil fraud penalties, FBAR penalties, and accuracy-related penalties without any of VDP's negotiated resolution path or its consideration against a criminal referral.

How Is IRS VDP Different From Streamlined Filing Compliance Procedures?

VDP and the Streamlined Filing Compliance Procedures serve two different taxpayer populations, split entirely by whether the underlying conduct was willful.

The table below reflects that taxpayers concerned about willful conduct and criminal liability go through VDP, while streamlined FBAR filing through the Streamlined Domestic or Foreign Offshore Procedures is reserved for negligence, inadvertence, or a good-faith misunderstanding of the law. Late FBAR filing procedures outside either program, sometimes called quiet disclosures, do not offer criminal-prosecution consideration and remain subject to full examination.

How Verni Tax Law Helps With IRS Voluntary Disclosure Cases

Anthony N. Verni has represented taxpayers through offshore disclosure matters since 2009. As an attorney, CPA, and MBA who personally handles every case, he brings legal, accounting, and financial analysis to a single file rather than splitting it across departments.

Verni Tax Law helps taxpayers with:

Evaluating whether specific conduct meets the willfulness standard before a disclosure is ever filed

Preparing Form 14457 Part I and Part II, including the sworn narrative CI requires

Direct representation before IRS Criminal Investigation throughout the preclearance and disclosure review

Defense during the civil examination phase, including penalty negotiation and closing agreement review

IRS Criminal Investigation Representation

Because VDP runs through IRS-CI rather than a civil unit, direct experience with how CI evaluates disclosures matters. He communicates with CI-Headquarters-Global Operations Policy & Support on preclearance status, timeliness questions, and disqualifying-factor issues as they come up.

Civil Examination Defense

Once a case moves to a civil examiner, the focus shifts to penalty computation, documentation requests, and the closing agreement. He represents clients through that entire phase, working to keep the resolution consistent with what the disclosure actually supports.

Book a confidential consultation with Anthony N. Verni to review your specific facts before any disclosure is filed.

Conclusion

The Voluntary Disclosure Practice is the compliance path for taxpayers whose noncompliance was willful, not the offshore-specific successor OVDP once was. Current rules impose a 75% civil fraud penalty and a 50% willful FBAR penalty over a six-year lookback, while a December 2025 IRS proposal would replace that structure with a 20% accuracy-related penalty and per-year FBAR assessments once finalized. Timeliness decides eligibility, and no disclosure, current or proposed, guarantees immunity from prosecution.

Anthony N. Verni has guided taxpayers through offshore and domestic disclosure matters since 2009, including the transition from OVDP into the current VDP framework, and he personally reviews every case he takes on as both attorney and CPA. His firm evaluates willfulness before filing, prepares the Form 14457 narrative CI requires, and represents clients through both the criminal investigation and civil examination stages of a disclosure.

If you have undisclosed foreign accounts, unreported offshore income, or willful FBAR exposure, connect with Anthony N. Verni before deciding how to proceed.

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