How it works
Taxpayers with potential criminal exposure submit Form 14457 Part I to IRS Criminal Investigation for preclearance, then Part II with a full disclosure. The disclosure period is typically six years. The taxpayer pays tax, interest, and a civil fraud penalty on the highest-tax year, files or amends returns, and cooperates fully. In exchange, the IRS generally does not recommend prosecution. The practice is unavailable once the IRS has already begun an investigation or received information about the taxpayer from a third party.
Why it matters
This is the willful taxpayer’s path. It is expensive compared with the streamlined procedures, but it is designed to resolve criminal exposure, which the streamlined procedures do not address.
Example
A business owner deliberately routed 500,000 dollars of income through an offshore account over five years. Through the Voluntary Disclosure Practice he pays the tax, interest, and a 75 percent fraud penalty on the highest year, and avoids prosecution.
Related: Form 14457, quiet disclosure. Read more: the IRS Voluntary Disclosure Program.
