Compliance
Compliance Spotlight: Voluntary Disclosure Practice Revisions and What Businesses Should Know
The IRS has proposed changes to its Voluntary Disclosure Practice (VDP) aiming to reduce barriers for compliance. Businesses need to know eligibility, penalties, and how to respond.
By NomadicTax Research Team • 5-8 min read • March 30, 2026
## What Is the VDP & Proposed Changes
The **Voluntary Disclosure Practice (VDP)** is a program for taxpayers to correct non-compliant tax reporting or payments and avoid potential criminal liability. On December 22, 2025, the IRS proposed revisions to the criminal VDP, opening a public comment period through March 22, 2026. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/the-irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-changes/2026/02/?utm_source=openai)) These proposed changes seek to make the program more accessible by adjusting penalty structures and improving procedural clarity. However, the definition of illegal-source income remains unchanged. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/the-irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-changes/2026/02/?utm_source=openai))
## Key Compliance Implications
- **Eligibility expansion**: The changes may broaden who can make a voluntary disclosure, especially for those whose failures were not intentional or involved less severe noncompliance.
- **Penalty relief**: The updates propose lower penalty rates for many classes of non-compliance and offer more transparent rules. Companies should assess how past or pending discrepancies could fall under these reliefs.
- **Procedural clarity**: Businesses will benefit from more predictable IRS responses; clarity over documentation and timelines makes remediation planning easier.
## What Businesses Should Do Now
- **Audit internal reporting and filing** to find potential issues before the public comment deadline (March 22, 2026). Entities should especially review offshore reporting (e.g. FBARs) or third-party network transactions. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/the-irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-changes/2026/02/?utm_source=openai))
- **Engage with the comment period**: Submit feedback or suggestions to vdp@ci.irs.gov; these inputs could influence final rulemaking. Organizations often benefit from organized group commentary. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/the-irs-seeks-public-comment-on-proposed-voluntary-disclosure-practice-changes/2026/02/?utm_source=openai))
- **Document eligibility carefully**: Prepare evidence of when failures occurred, whether they were intentional, and mitigation steps taken. That will help qualify for reduced penalties or protection from criminal exposure.
## Example Scenario
A software firm discovers it mis-reported revenues from a third-party platform over two years. Under the existing VDP, penalties could be steep and potential exposure to criminal sanctions daunting. Under the proposed changes, if the firm proactively discloses, it may face reduced penalties and avoid criminal investigation, particularly since the proposal aims to make non-intentional misreporting less punishing.
## Actionable Timetable
| Date | What to Do |
|---|---|
| Until March 22, 2026 | Review your history; prepare comments or request guidance if needed. |
| After rule finalization | Determine eligibility under new rules; begin disclosure processes if advantageous. |
| When filing returns | Claim benefits under updated standards (e.g. reworked penalty rates). |
The VDP revisions represent meaningful movement toward a more forgiving, clearer compliance framework. Businesses should proactively assess where it might apply to them.