The IRS Voluntary Disclosure Program (VDP) has long offered taxpayers with unreported income a path to compliance before the agency discovers the problem independently. In 2026, proposed changes to the program’s penalty structure are reshaping the math in our favor for coming forward.
Major changes in the proposal include…
1 – The program replaces the current 75% civil fraud penalty with a standardized 20% accuracy-related penalty.
2 – Taxpayers generally disclose income and assets over a six-year period.
3 – The agency aims to process and close cases within a 120-day target.
4 – Participants must pay all owed taxes, interest, and penalties in full within three months of receiving conditional approval, meaning installment plans are not allowed.
The program covers a wide range of situations, including but not limited to…
1 – Unreported foreign bank accounts and offshore income,
2 – Unreported domestic cash business income,
3 – Cyptocurrency gains,
4 – Freelance earnings,
5 – And inherited accounts generating taxable returns.
The most significant benefit is that taxpayers who come forward before the IRS initiates an examination generally avoid criminal prosecution. Given that willful tax evasion carries potential prison sentences of up to five years and fines up to $250,000, the civil penalty route represents a fraction of the criminal exposure.
Let me leave you with this…
I had a guy walk into my office last Monday for a complimentary tax planning session. The IRS was auditing his 2024 and 2023 Personal Income Tax Returns.
He had over $700K in W-2’s on the return and several Airbnb rentals. He’d completed the returns himself using a common store bought tax program.
I looked at the 2024 return and immediately focused on a Schedule C Sole Proprietor’s Return with $70 in income and a deducted loss of over $59K.
I asked him what this was and it was one of his Rental Properties. Of course, passive income such as this belongs on a Schedule E with Real Estate, where the loss would have been limited to $25K.
But I started picking through the individual deductions, and he had claimed an auto expense deduction of over $23K. At $0.67 per mile, that came to over 34K miles!
I asked him how it was possible to drive over 34K miles and only earn $70 in gross income? He asked me why I was talking about mileage.
The $23K was the total amount he had paid for the car, which, of course, can’t be deducted.
There were other glaring mistakes, like claiming a $59K deduction with only $70 in income. How this guy expected to be audited and not put into the slammer is beyond understanding, but I’m sure you catch my drift.
I hadn’t seen a more glaring example of income tax evasion in quite some time.
He asked what he should do and I told him that he should immediately go to the Revenue Officer, plead ignorance, show them everything that he had done wrong, and beg for mercy.
He looked at me like I was nuts and asked, “Why would I ever do that? Even in a full audit, the IRS probably won’t catch half of what you noticed.”
I asked the man politely to leave. Okay, maybe I wasn’t so polite.
It should be understood that tax law, being an adjunct of criminal law, is about intent. If they can prove willful intent, they can and will throw the book at you. He was already being audited, so the VDP wasn’t an option.
But understand that if you find yourself in one of these situations, for whatever reason, the program is probably a great idea. It lowers the penalty from 75% to 20% and generally removes the potential for jail time.
Tax compliance is a religion to most IRS Employees. If you can show them that you had a “Come To Jesus” moment, have seen the error of your ways, and won’t do it again, they’ll probably go easy on you.
If not, then you could be the next contestant on that fun-filled, family gameshow called, “Don’t Drop The Soap.”
Think about it.
If you’re having problems with your accounting and tax work, we’d love to help. Please click the button below to schedule a complimentary tax planning appointment. You’ll be glad you did.
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Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
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