Tax Law Center Blog

The IRS is to remove the “willfulness” checkbox from Form 14457, the Voluntary Disclosure Practice Preclearance Request and Application.

For years, the Voluntary Disclosure Practice has been an important corrective mechanism for taxpayers who have unreported income, undisclosed offshore accounts or other noncompliance issues. It provides a pathway to come forward, correct past errors, and resolve potential criminal tax liabilities. However, a major point of contention on the application form has been the requirement for taxpayers to attest, under the penalty of perjury, that their noncompliance was “willful.”

This seemingly simple checkbox created a dilemma: Admitting to “willfulness” is a legal conclusion with serious ramifications. In tax law, “willfulness” implies a voluntary, intentional violation of a known legal duty. Checking that box could be seen as a direct admission of criminal intent, a potentially damning piece of evidence that could be used against a taxpayer. This requirement essentially forced taxpayers to confess to a crime before they were even evaluated for the VDP program, creating a significant chilling effect on potential applicants.

The Taxpayer Advocate Service recognized this major issue. In a recent blog post, the TAS highlighted their successful advocacy efforts, reporting that the IRS has now committed to removing this problematic checkbox. This change represents a more pragmatic approach to the voluntary disclosure process.

What This Means for Our Clients

This change is a game-changer for several reasons:

1. Reduced Legal Exposure: Taxpayers will no longer be forced to make a self-incriminating admission of “willfulness” at the outset of the VDP process. This allows for a more comprehensive legal evaluation of their case without an automatic admission of guilt.
2. Encourages Compliance: By removing a major deterrent, this change makes the VDP more accessible and encourages more taxpayers to come forward voluntarily. It shifts the focus from a pre-admission of guilt to a genuine effort to rectify past mistakes without an admission.
3. A More Fair Process: The VDP’s purpose is to allow taxpayers to get right with the IRS. Forcing an admission of willfulness undermined this purpose and created a potential trap for applicants. The new VDP form will better reflect the spirit of a voluntary disclosure program.

While this is a welcome development, it is crucial to understand that the removal of the checkbox does not mean the concept of “willfulness” is no longer relevant. The IRS and the Department of Justice will still consider a taxpayer’s intentions in determining penalties and whether a criminal investigation is warranted. The key difference is that the taxpayer is no longer required to make a conclusive legal determination on the VDP application form.

However, legal counsel remains more important than ever. The VDP is a complex and high-stakes process. Navigating it requires an in-depth understanding of tax law, criminal tax procedures, and IRS policy. Whether your noncompliance was willful or not, engaging with the IRS through the VDP with tax legal counsel is advisable.

If you have undisclosed foreign bank accounts, unreported income, or any other significant tax compliance issues, this is an opportune time to consider the Voluntary Disclosure Practice. We can help you evaluate your situation, prepare the VDP application, and guide you through every step of the process with the IRS.

To learn more about this change and how it might impact your specific situation, we invite you to schedule a confidential consultation. We can help you navigate this complex tax legal landscape and find a path to compliance.