What's Happening?
The Internal Revenue Service (IRS) has announced a 90-day public comment period for proposed updates to its Voluntary Disclosure Practice. The updates aim to introduce a more streamlined penalty framework for taxpayers who voluntarily disclose previously
unreported income or assets. Under the proposed changes, taxpayers who are conditionally approved must file amended or delinquent income tax returns, international information returns, and Reports of Foreign Bank and Financial Accounts (FBARs) within three months. They must also pay all taxes, penalties, and interest in full, and execute the required agreements to finalize their participation. The disclosure period will generally cover the most recent six years for delinquent and amended returns. The proposed penalty structure is designed to be clear, predictable, and consistent across all disclosures, with specific penalties for different types of returns. The IRS is seeking public comments on these proposed updates by March 22, 2025.
Why It's Important?
The proposed updates to the IRS's Voluntary Disclosure Practice are significant as they aim to encourage more taxpayers to come forward with previously undisclosed income or assets by offering a clearer and more predictable penalty framework. This could potentially increase compliance and revenue collection for the IRS, as taxpayers may be more willing to disclose their noncompliance if they understand the penalties they face. Additionally, the updates could help streamline the process for both taxpayers and the IRS, reducing administrative burdens and improving efficiency. For taxpayers, the ability to avoid criminal prosecution by participating in the program is a major incentive, providing a pathway to rectify past noncompliance without facing severe legal consequences.
What's Next?
The IRS has set a deadline of March 22, 2025, for public comments on the proposed updates to the Voluntary Disclosure Practice. After the comment period, the IRS will review the feedback and potentially make adjustments to the proposed framework. If finalized, the revised procedures are expected to take effect six months after the publication of the final terms. Taxpayers and tax professionals will need to stay informed about these changes to ensure compliance and take advantage of the updated program. The IRS may also conduct outreach and education efforts to inform taxpayers about the new procedures and encourage participation.
