United States: The New Voluntary Disclosure Practice: A Fair Compromise?

On November 29, 2018, the IRS released updated Voluntary Disclosure Practice (VCP) procedures applicable to both offshore and domestic voluntary disclosures. The new VCP supersedes in part the IRS's longstanding voluntary disclosure practice and fills the gap left in the absence of the Offshore Voluntary Disclosure Program (OVDP), which ended on September 28, 2018 (see prior alert here). The VCP will now apply to all voluntary disclosures, both domestic and offshore, submitted after September 28, 2018, and the IRS may, in its discretion, apply the VCP guidelines to unresolved domestic voluntary disclosures submitted on or before that date. Taxpayers who did not enter the OVDP or who have non-offshore compliance issues must now evaluate whether the VCP is the proper avenue for rectifying prior tax and reporting noncompliance and addressing their criminal exposure.

For decades, the IRS has followed an informal voluntary disclosure practice, set forth in the Internal Revenue Manual, which allowed taxpayers with potential criminal exposure for prior tax and reporting issues, to voluntarily resolve those issues with the IRS in exchange for payment of tax, interest, and any civil penalties that the IRS determined to be applicable, as well as protection from criminal prosecution if they make their disclosure in a timely manner. This voluntary disclosure practice was only a matter of IRS internal policy—there was no particular format for making a voluntary disclosure and no set penalty structure.

In 2009, the IRS introduced the Offshore Voluntary Disclosure Program, an issue-specific voluntary disclosure program for taxpayers with previously unreported offshore assets. Unlike the voluntary disclosure practice, the OVDP established formal procedures for participation in the program, a uniform civil penalty structure, and a promise of no criminal prosecution. When the program ended on September 28, 2018, practitioners and taxpayers questioned whether the IRS would establish a permanent program or simply continue to follow its informal practice. The VCP combines elements of both, providing uniform procedures for both domestic and offshore voluntary disclosures and a flexible, but in comparison to OVDP, more open-ended penalty structure.

Similar to the OVDP, the VCP provides formal procedures for participation in the program. Taxpayers wishing to make a voluntary disclosure must submit a preclearance request to the IRS Criminal Investigation Division and, upon acceptance, promptly submit the facts and circumstances, and identify their assets, entities, related parties and any professional advisors involved in the noncompliance on Form 14457 (forthcoming). The VCP covers a six-year disclosure period (shorter than the eight-year OVDP period), but allows a taxpayer to expand the disclosure period if desired (e.g., to correct other tax issues, such as those involving other governments, relating to a sale or acquisition of an entity, closing an estate, or to unreported taxable gifts in prior periods). Participants must submit tax returns and make full payment of all taxes, penalties and interest for the disclosure period. At the completion of the IRS examination of the disclosure package, participants enter into a closing agreement with the IRS. A new feature is that those who cannot reach an agreement on taxes and penalties have the right to appeal the results of the examination with the IRS Office of Appeals.

The VCP penalty regime differs from both the OVDP and the longstanding voluntary disclosure practice: it provides general penalty guidance to IRS examiners, while still leaving them with substantial discretion. Taxpayers participating in VCP should anticipate:

  • A fraud penalty equal to 75% of the unpaid income tax on the noncompliant year with the highest income. Examiners retain discretion to impose a fraud penalty for other years.
  • A willful FBAR penalty equal to 50% of undisclosed assets' value for taxpayers disclosing foreign financial assets.
  • The potential to present evidence to attempt to mitigate the fraud and willful FBAR penalties. However, obviously recognizing that people who enter the VCP have concerns about criminal liability, the guidelines make clear that a grant of such relief would be an exception to the general rule.
  • Penalties for failure to file foreign information returns will not be automatically applied. The amount of the penalty varies by return, and examiners retain discretion in implementing any such penalties, taking into account the application of other penalties.
  • Penalties in connection with estate and gift taxes, employment taxes, and excise taxes based on the facts and circumstances of the particular case.

Although the penalty regime is more uncertain, and in most cases potentially more severe, than in the OVDP (and certainly more onerous than our prior experience with non-OVDP cases), the IRS makes clear that the VCP is geared toward taxpayers with possible criminal exposure, and for many in that category, that is its primary benefit.

Taxpayers who do not have criminal exposure have other options to rectify prior noncompliance, offshore or domestic, through other established IRS procedures, such as Streamlined Filing Compliance Procedures, the Delinquent FBAR or International Information Returns Submission Procedures, or by simply filing amended or delinquent tax returns. Taxpayers contemplating these options should seek legal counsel to evaluate the best approach with respect to their specific facts and circumstances.

This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Zhanna Ziering
Events from this Firm
13 Dec 2018, Other, Washington, DC, United States

In an era where “fake news” is a term used as a political weapon, tech and media companies are under increased scrutiny to address cybersecurity and protection of digital information.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions