IRS voluntary disclosure explained: OVDP vs streamlined (What applies now?)
The IRS voluntary disclosure program closed on September 28, 2018. The IRS announced on March 13, 2018, that it would ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP).
OVDP closed on that date, and since then, the IRS has kept streamlined procedures for non-willful filings and the Criminal Investigation Voluntary Disclosure Practice for higher risk situations.
- Streamlined Procedures are for taxpayers who can certify their conduct was non-willful, and they usually require 3 years of tax returns and 6 years of FBARs.
- IRS Criminal Investigation Voluntary Disclosure Practice: VDP uses Form 14457; you request preclearance (Part I), and after you receive a preclearance letter, you must electronically submit Part II within 45 days. The IRS may grant no more than one additional 45-day extension on a case-by-case basis.
This article by Taxes for Expats explains the OVDP closing in detail, so that you can choose the accurate compliance path for your situation today.
What was OVDP, and why was it closed?
The Offshore Voluntary Disclosure Program (OVDP) was an IRS program that allowed taxpayers to report previously undisclosed foreign income and accounts in exchange for penalty certainty and protection from criminal prosecution.
The IRS closed OVDP in September 2018 after participation declined and global reporting under FATCA made offshore enforcement more effective.
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Purpose of OVDP (offshore compliance)
At its core, OVDP was a formal path to fix unreported foreign income and accounts in an organized package. Taxpayers filed amended returns, corrected FBARs, and paid a one-time offshore penalty that was often 27.5%, but could increase to 50% in certain cases (including where an account was held at, or facilitated by, a listed institution). -
Who it was for (willful/non-willful mixed)
The OVDP IRS program was used by people across a wide spectrum, from those who made honest mistakes to those worried their actions could be viewed as willful. It created one structured framework, while later options, like streamlined procedures, introduced alternatives that could involve a 5% offshore penalty in certain domestic cases. -
Why the IRS closed it
The IRS explained that participation had fallen to about 600 disclosures in 2017, down from a peak of roughly 18,000 in 2011. It also pointed to stronger enforcement, including 1,545 indictments tied to international activity since 2009, and said it now had better tools such as FATCA reporting and ongoing civil examinations.
OVDP closed on September 28, 2018, after more than 56,000 taxpayers came forward and paid a total of $11.1 billion in tax, interest, and penalties.
The IRS made it clear that ending the program did not mean easing offshore enforcement – it marked a shift toward other IRS compliance paths already in place.
| Topic | OVDP (Then) | IRS Voluntary Disclosure (Now) |
|---|---|---|
| Program status | Closed IRS program | Active, but split into different paths |
| Full name | Offshore Voluntary Disclosure Program | Streamlined Filing Procedures & Voluntary Disclosure Practice |
| Main purpose | Bring offshore non-compliance into the system | Match taxpayers to the right compliance option |
| Who it was for | Offshore taxpayers, willful or non-willful | Non-willful (Streamlined) or willful/high-risk (VDP) |
| Penalty approach | Fixed and often harsh | Case-based, depends on facts and intent |
| Criminal protection | Yes | Only under the Voluntary Disclosure Practice |
| Offshore accounts | Required disclosure | Still required, but handled by different programs |
| Flexibility | Very limited | More flexible and tailored |
| Typical outcome | Certainty, but high cost | Lower penalties when facts support it |
| What replaced it | — | Streamlined Filing Procedures and IRS Voluntary Disclosure Practice |
What is the IRS voluntary disclosure practice?
The voluntary disclosure practice is the IRS Criminal Investigation process for resolving willful tax noncompliance through a truthful, timely, and complete disclosure, followed by full cooperation and payment arrangements.
It can reduce the chance that the IRS Criminal Investigation recommends criminal prosecution, but it does not guarantee immunity.
Who should consider it?
- Willful failures to report income, pay tax, or file required information returns or reports, with criminal exposure concerns.
- A voluntary disclosure is generally “timely” only if the IRS receives it before it has started a civil examination or criminal investigation and before it has obtained information about your noncompliance from third parties (for example, through enforcement actions, whistleblowers, or other channels).
- Disclosures routed through VDP IRS procedures using Form 14457 (Part I preclearance, then Part II for preliminary acceptance).
- Situations requiring a representative – a separate Form 2848 for each taxpayer and entity is required when using a power of attorney.
- Matters involving only legal-source income – illegal-source income is excluded from this practice.
The taxpayers described above are not dealing with innocent mistakes. Willful conduct, in their case, means the person knew the rules, or clearly should have known them, and chose not to comply, and a VDP tax narrative must directly acknowledge that willful failure in writing under penalties of perjury during the civil process.
This level of intent separates the voluntary disclosure practice from programs meant for non-willful errors.
Why it’s not a DIY process:
The IRS Criminal Investigation process under the voluntary disclosure practice is built on strict procedure – meaning the margin for error is small.
“Like any government, the IRS is very procedural – they want specific returns in a specific order, with a specific header, with a specific color. If you fail to put this together, it may not be processed correctly, and you may be subject to those penalties.”
– Wendy Christiansen, CPA, Tax Supervisor at Taxes for Expats.
Because this path runs through IRS Criminal Investigation before moving to a civil exam, every step, deadline, and statement must line up precisely with IRS rules.
- Submit Form 14457 Part I (preclearance request) using the submission method provided on the IRS VDP page and/or the Form 14457 instructions. IRS guidance emphasizes electronic submission of the application, and the IRS has also issued a Dec. 22, 2025, proposal that would require electronic submission of Form 14457 under the updated framework.
After the IRS replies with a preclearance letter, you have 45 days to submit Part II. Only one extra 45-day extension may be granted. Missing these deadlines can end eligibility.
- Part II requires a detailed written statement signed under penalties of perjury. It must clearly explain what happened, which years are involved, how the conduct occurred, and list any professional advisors. These requirements are outlined in Internal Revenue Manual 9.5.11.
- The financial consequences are real. A Dec 22, 2025 proposal describes a framework that may include a 20% accuracy-related penalty on amended returns and up to $10,000 per return, per year for certain missing or amended international information returns. Those numbers can add up quickly over multiple years.
NOTE! The voluntary disclosure practice is meant to redirect a serious tax problem away from criminal prosecution and into a structured civil resolution when handled properly.
The protection works by bringing the case to the IRS Criminal Investigation first, so it can be reviewed and formally accepted before it turns into a criminal matter.
- After preliminary acceptance, the IRS sends a Preliminary Acceptance Letter and moves the case to a civil examiner to calculate tax, interest, and penalties instead of pursuing prosecution.
- The process follows Internal Revenue Manual rules, including IRM 9.5.11, which control how the case is handled and when a fraud referral could apply.
- The protection continues only with full honesty, because false statements can revoke acceptance and reopen the door to criminal review under IRM 9.5.11.
Domestic vs offshore voluntary disclosure program
Domestic voluntary disclosure usually focuses on income issues inside the US, while the offshore voluntary disclosure initiative is a common search phrase for foreign accounts and income, and in non-willful offshore cases, the streamlined options are typically SFOP (for many people living abroad) or SDOP (for people treated as living in the US).
So, even though the old OVDP closed, today’s paths are streamlined or the voluntary disclosure practice.
| Topic | Domestic Voluntary Disclosure | Offshore Voluntary Disclosure |
|---|---|---|
| What it covers | Unreported US-based income | Unreported foreign income or accounts (overseas) |
| Typical issues | Cash income, crypto, side businesses | Foreign bank accounts, investments, and foreign pensions |
| Foreign bank accounts involved? | No | Yes |
| FBAR / FATCA reporting | Not required | Often required |
| Who usually uses it | US residents with willful non-reporting | Expats and others with foreign assets |
| Common IRS path | Voluntary Disclosure Practice (VDP) | Streamlined Procedures or VDP |
| Penalty exposure | Case-by-case, often higher | Reduced or none if non-willful |
| Criminal protection | Available under VDP | Available only under VDP |
| Complexity level | High | High to very high |
| Professional help needed? | Almost always | Almost always |
The key takeaway is simple: the “domestic vs offshore streamlined voluntary disclosure” difference changes the forms and reporting, but willful risk is still what pushes a case toward VDP.
Voluntary Disclosure forms and process (VDP)
In the post-OVDP landscape, voluntary disclosure is less about entering a program and more about presenting a case correctly from the outset. That starts with preclearance, where eligibility and timing are evaluated before any detailed submission moves forward.
Preclearance concept
Preclearance is designed to confirm that a disclosure is timely and procedurally eligible before the IRS invests resources in a full review. The current VDP form – Form 14457 – is structured in two parts, separating the initial request from the detailed application that follows.
This sequencing reflects how seriously the IRS treats criminal exposure in offshore and domestic noncompliance matters.
Disclosure narrative
The narrative is the backbone of the submission. It must present a coherent account of the relevant years, income streams, entities, accounts, and decision points, all aligned with filed and amended returns. Internal Revenue Manual 9.5.11 emphasizes that voluntary disclosures must be truthful, timely, and complete, and that cooperation is essential to maintaining protection within the practice.
A well-drafted IRS voluntary disclosure letter style explanation does more than summarize facts – it reconciles inconsistencies, connects timelines, and ensures that statements match financial records and prior filings.
Why accuracy matters
VDP exists to redirect serious tax exposure into a controlled civil resolution framework, but that framework assumes precision. A well-prepared IRS voluntary disclosure letter-style narrative avoids material omissions or contradictions, which can undermine credibility and affect how the case is resolved on the civil side.
Penalty exposure is not theoretical. For example, the civil fraud penalty under IRC 6663 equals 75% of the portion of the underpayment attributable to fraud. In offshore contexts, that figure can compound across multiple years, especially where unreported foreign income or information returns are involved.
Timeline expectations (high-level)
The voluntary disclosure practice operates within defined response windows and structured IRS review phases. After a criminal investigation grants preliminary acceptance, the matter transitions into a civil examination phase focused on tax, interest, and applicable penalties rather than prosecution.
For 2026 planning, note the IRS has also floated proposed VDP updates that would require full payment within three months of conditional approval, with an expectation that final changes could take effect six months after publication of final terms.
Voluntary disclosure penalties – what to expect
Look forward to a structured civil resolution where VDP penalties are reviewed and determined based on your specific facts – not imposed automatically. The outcome depends on intent, accuracy, and full cooperation with the IRS.
Compared to penalties that can apply after IRS discovery, the benefits of voluntary disclosure often include a more predictable and lower overall result.
| Compliance path | How penalties are determined | Typical penalty exposure | Overall risk level |
|---|---|---|---|
| Streamlined Procedures | Based on non-willful certification and facts | Often reduced or zero if you qualify | Low |
| Voluntary Disclosure Practice (VDP) | Negotiated case-by-case with the IRS | Usually higher, but avoids worst-case outcomes | Medium |
| Late filing with no tax owed | Penalties tied to tax due (often none) | Often minimal or none | Low |
| Quiet filing (not recommended) | IRS decides after the fact | Unpredictable; penalties may increase | High |
| Doing nothing | Full IRS enforcement if discovered | Maximum penalties possible | Very high |
How to choose the right voluntary disclosure option
The right option comes down to one thing: whether the facts point to a non-willful mistake or a higher-risk situation that needs the Voluntary Disclosure Practice.
| If this describes your situation | Key concern | Most likely option |
|---|---|---|
| You didn’t know you had to file or report | Non-willful mistake | Streamlined Procedures |
| You lived abroad and misunderstood the US tax rules | Unintentional non-compliance | Streamlined Offshore Procedures |
| You knew about the filing rules and didn’t comply | Willful or high-risk behavior | Voluntary Disclosure Practice (VDP) |
| You had foreign bank accounts, but no intent to hide them | Reporting confusion (FBAR/FATCA) | Streamlined (review first) |
| You earned income in the US and intentionally didn’t report it | Domestic willful issue | Domestic VDP |
| You received an IRS letter or audit notice | Active IRS attention | VDP (professional CPA review needed) |
| You’re unsure which category you fall into | Risk of choosing the wrong path | Professional-guided review |
When the facts are mixed or timing is sensitive, choosing the wrong track can raise penalties, so a careful review up front is often the smartest move.
IRS voluntary disclosure FAQs
OVDP was a special IRS program for disclosing offshore assets and coming back into compliance, and it was terminated on September 28, 2018. It is not available today.
After OVDP closed, the IRS continued to consider disclosures through the Voluntary Disclosure Practice (VDP), with streamlined procedures remaining a separate option for non-willful cases.
VDP is a long-standing IRS Criminal Investigation practice where a taxpayer makes a truthful, timely, and complete disclosure of willful noncompliance using designated procedures. It can reduce the likelihood that criminal prosecution is recommended, but it does not guarantee immunity.
Streamlined filing compliance procedures are built for non-willful mistakes, while VDP is aimed at willful noncompliance and potential criminal exposure. The IRS explicitly points to willfulness concerns toward VDP rather than streamlined.
No – streamlined procedures are a different compliance option for non-willful conduct, while OVDP is closed and cannot be entered. Streamlined and OVDP also had coordination rules that treated them as separate tracks.
VDP requires good-faith arrangements to pay tax, interest, and any penalties the IRS determines are applicable, and the civil resolution framework applies for disclosures received after OVDP ended. A timely voluntary disclosure may also mitigate exposure to civil penalties.
Yes – the IRS describes VDP as a compliance option for willful failures involving tax or tax-related obligations generally, not just offshore matters. Internal IRS procedures also reference domestic VDP handling once CI acceptance occurs.
The clean dividing line in this IRS voluntary disclosure FAQ is willful vs non-willful: willful conduct points toward VDP, while non-willful errors point toward streamlined or other correction options the IRS lists.
