Compliance
Compliance Spotlight: Proposed Changes to the Voluntary Disclosure Practice (VDP)
IRS's proposed overhaul of its Voluntary Disclosure Practice promises clearer penalties, streamlined processes, and reduced criminal risk—what every non-compliant taxpayer should know.
By NomadicTax Research Team • 5-8 min read • March 6, 2026
## What Is the Voluntary Disclosure Practice (VDP)?
The IRS VDP is a program that allows taxpayers who have not complied with U.S. tax laws—often around unfiled returns or undisclosed foreign accounts—to come forward and avoid potential criminal penalties, if certain conditions are met.
## What’s Proposed in Early 2026? (Public Comment Review)
On **December 22, 2025**, the IRS published proposed changes to its VDP, with a **90-day public comment period** ending **March 22, 2026**. Significant revisions are expected under the final rule—if adopted—**six months after final terms are published**. ([irs.gov](https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal?utm_source=openai))
Key highlights of the proposal:
- A **Disclosure Period** of the last **six years** for delinquent or amended returns, international information returns, and FBARs. ([irs.gov](https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal?utm_source=openai))
- **Penalty Framework**:
• Failure-to-file penalties per year during the disclosure period.
• Failure-to-pay penalties waived for that period.
• Amended returns incur a **20% accuracy-related penalty** per year.
• FBAR penalties per year, with inflation adjustments.
• International information returns penalties up to **$10,000/year** per return. ([irs.gov](https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal?utm_source=openai))
- Applicants must file all required returns/amends and pay taxes/penalties within **3 months** of conditional approval. They also must waive statutes of limitations and sign necessary agreements. ([irs.gov](https://www.irs.gov/newsroom/irs-seeks-public-comment-on-voluntary-disclosure-practice-proposal?utm_source=openai))
## Why These Changes Matter
- Provides more **predictability** for those seeking to regularize their status—knowing what penalties apply.
- Encourages early participation by offering potential protection from criminal charges—but only if all steps are timely executed.
- Keeps international reporting obligations (FBAR, etc.) in sharp focus. Past failures to report abroad have been major compliance risk areas.
## Actionable Advice for Potential Participants
- Begin assessing **whether VDP applies** to your situation—especially overseas income, mistakes on FBAR, or unfiled returns in past years.
- Gather key documents and calculate tax liability, penalties, and interest for the past **six years**.
- Track the comment deadline (March 22, 2026) to see final rules—some may change before implementation.
- Consult a tax professional experienced in international and disclosure law, and consider preclearance steps once ready.
## Example
«Carlos», a U.S. citizen, worked abroad and failed to file FBARs and international information returns for years 2020–2023. He comes forward under VDP:
- He applies for conditional approval, then files all delinquent returns and FBARs 2020-2025 (Disclosure Period covers 6 years).
- He pays taxes, interest, and penalties, and signs waivers.
- If all done in time and conditionally approved, he avoids criminal prosecution—and penalty structure is predictable under proposed rules.
## Final Thoughts
This proposal is a significant compliance tool—but comes with strict timelines and conditions. For anyone with exposure to hidden income or foreign financial accounts, VDP under the proposed changes could offer a safer path—but early planning and full disclosure are essential.