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How Changes to Form 14457 May Affect IRS Voluntary Disclosure Practice

Posted on in Taxation Law

san jose tax lawyerThere are a variety of situations where taxpayers may be accused of violating U.S. tax laws. These violations may be uncovered during a tax audit, or a taxpayer may have failed to properly report foreign assets and income. In cases where a person may face criminal charges or civil penalties for non-compliance with tax laws, they may be able to come into compliance by voluntarily disclosing information to the IRS. Taxpayers who are considering a voluntary disclosure will need to be aware of some recent changes to tax forms used to report information to the IRS.

What Is Voluntary Disclosure Practice?

Taxpayers are encouraged to disclose information to the IRS that may affect the determination of the taxes they are required to pay. Some disclosures may be civil in nature, for example if the taxpayer has made an honest and nonwillful mistake and omitted disclosure of a foreign account required to be disclosed via annual Forms 114 (FBAR). Such disclosures may be made to the IRS via Streamlined Disclosure Procedures where taxpayers may be required to pay a civil penalty without criminal prosecution. However, the IRS Criminal Investigation (CI) division is focused on uncovering criminal violations of tax laws, and depending on its findings, it may choose to pursue criminal charges against non-compliant taxpayers. If such a taxpayer voluntarily discloses applicable information to the IRS, this may affect the CI division’s decisions on whether to recommend criminal prosecution. Voluntary Disclosure Practice is an option if a taxpayer has willfully violated tax laws, and taxpayers will be required to cooperate with the IRS to determine their tax liabilities and make arrangements to pay the taxes they owe, as well as any applicable penalties or interest.

Updates to Disclosure Preclearance Forms

In Voluntary Disclosure Practice cases, one of the key forms that a taxpayer will be required to submit is Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application). This form will provide information about a person’s tax liabilities, their financial accounts, and other information related to their non-compliance with tax laws. The IRS recently released a revised version of this form, including the following changes:

  • Virtual currency - Taxpayers who own cryptocurrency will be required to report these assets to the IRS. Any virtual currency that was owned, acquired, sold, or disposed of during the applicable disclosure period will need to be included, including cryptocurrencies owned or controlled directly or indirectly by the taxpayer. 

  • Penalties for certain types of taxes - The form details the civil fraud penalties or fraudulent failure-to-file penalties related to employment taxes, estate taxes, and gift taxes. These penalties may be reduced if a taxpayer meets their requirements for voluntary disclosure.

  • Inability to pay - Form 14457 now includes a checkbox that will allow a taxpayer to state that they do not currently have the ability to pay in full the amount owed to the IRS. A taxpayer will be required to provide evidence of their inability to pay, and they will need to make arrangements to pay what is owed, such as by setting up a payment plan.

Contact Our San Jose Tax Disclosure Attorney

If you are concerned about the penalties you may face due to non-compliance with tax laws, John D. Teter Law Offices can help you understand your options. We will work with you to determine whether Voluntary Disclosure Practice may help you come into compliance with tax laws, and we will advise you on how you may be able to minimize the taxes and penalties that you will be required to pay. Contact our San Jose, CA tax compliance lawyer today at 408-866-1810 to get legal help with criminal and civil tax penalties and other matters involving the IRS.


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