Form 14457: Voluntary Disclosure Practice Preclearance and Application
If you’ve been willfully noncompliant with tax regulations, you may be able to reduce your risk of criminal charges and get back into compliance through the IRS’s Voluntary Disclosure Practice.
The Voluntary Disclosure Practice (VDP) is the program, headed by the IRS Criminal Investigation division, that gives taxpayers a gateway to resolve their tax problems before an IRS-led investigation is initiated. The process of coming clean to the IRS starts with filing Form 14457.
It is imperative that the VDP application is completed accurately and completely, or the request can be denied. If you’re ready to start the process of applying to the VDP to resolve your tax issues, here’s what you need to know. To get help now, contact us at Seattle Legal Services today.
What is IRS Form 14457?
IRS Form 14457 is the beginning step to reconciling willful noncompliance with the IRS. This form is intended for those who have purposefully omitted information from the IRS, and not for those who have made a mistake when filing.
The form is to be used by individuals and business entities who have exposed themselves to criminal liability or committed a tax-related crime. It is important to know that by submitting the form, you are not guaranteed immunity from prosecution, though it is intended to provide protection from prosecution.
The form is designed for taxpayers to request preclearance into the practice and start the process of becoming current with the IRS. You are able to provide information about the transgressions and begin communication with IRS Criminal Investigation (CI) to become in compliance.
Separated into two parts, Form 14457 is to be filled out initially to request preclearance into the practice. Part I asks for information regarding identifying the person submitting the disclosure, the years for which the tax-related noncompliance has taken place, and information about the noncompliant financial accounts and assets in question.
Part II of the form is intended to get an in-depth picture of the circumstances surrounding the noncompliance and serves as the means to disclose any information, whether or not it makes the taxpayer look bad, to attempt to resolve the noncompliance for good.
Who Should Use IRS Form 14457?
Taxpayers who have willfully failed to report income, pay taxes, or comply with reporting obligations are the intended audience for this form.
If you have accidentally omitted information from your previous filing, this form is not for you. Form 14457 is intended for those who have engaged in willful noncompliance that exposes them to criminal liability for tax and tax-related crimes. Examples of reasons to submit the form include:
- Unreported cryptocurrency transactions.
- Offshore accounts and foreign income that was withheld from the IRS.
- Business owners with unreported cash income.
- Taxpayers with prior false returns or evasion.
Key Components of Form 14457
Part I: Preclearance Request
To gain preclearance with the VDP, the IRS requires personal details about you or the business that was involved with the noncompliance. If the tax-related noncompliance involves a joint filing, you are able to disclose information together, even if the spouse did not know about the noncompliance.
Applicants are also asked to give information regarding the related entities they controlled as well as financial institutions with which they had accounts during the time in question.
It is imperative to know that Part I of Form 14457 is to be the only information that is sent to the IRS at this time. This is the preclearance stage of the application and it will be sent to CI for review. This first step is to determine if you are eligible for the practice and sending in additional information is only required after you are sent a Preliminary Clearance Letter.
Part II: Voluntary Disclosure Application
Part II requires a detailed disclosure of the noncompliance. You will share the years involved in the noncompliance and the amounts owed. This happens in the form of a narrative that illustrates a truthful and complete picture of what happened from conception to the present.
It is important to know that the IRS requires you to include any information about the transgression as there will not be an opportunity to file any amendments to the application. You will have 45 days from the pre-clearance letter to supply CI with the information requested. If you are unable to provide the information and requested documentation, you may file for an additional 45 days to turn the information in. If the IRS does not receive information within the timeframe given, your application will be denied.
How to Complete IRS Form 14457
Step I. Determine Eligibility
Determine your eligibility for the program. Form 14457 is to be used by individuals (U.S. Citizens, Green Card Holders, Non-Resident Aliens, Expatriates, etc.) and businesses (Corporations, Partnerships, LLCs, Trusts, Estates) who willfully have not complied with taxes.
You should not use the form if you have made an error on previous filings. Also, it is to be noted that individuals or businesses who retain income from a federally illegal business may not use the practice, even if the business is legal in the state where the business operates.
Step 2: Complete Part I
Fill out Part I of Form 14457 completely with your information with a summarization of the noncompliance along with the nature of the violation. You will also be asked if you are aware of any criminal enforcement action or IRS investigation that involves noncompliance.
After completing Part I, you will send the form to the IRS for review for pre-clearance.
Do not submit an incomplete Part I, forget to include the information requested or provide inconsistent details. Wait until you are contacted by the IRS via a Preliminary Clearance Letter that includes a case-control number to provide Part II.
Step 3: Gather Required Documentation
To complete your disclosure, you’ll need detailed records of your financial activities and tax filings. While you wait for a Preliminary Clearance Letter, gather the following:
Tax Returns:
- Copies of all original returns for the disclosure period (usually the most recent six years).
- Documentation of unfiled returns or amended returns as necessary.
Income Records:
- Wages, business income, investment income, rental income, and other earnings.
- Cryptocurrency gains or other digital asset transactions.
Offshore Account Information (if applicable):
- Statements for all foreign accounts (bank accounts, trusts, or investment accounts).
- Details of transfers, interest income, and account balances.
- Previous FBAR (FinCEN Form 114) filings or missed filings.
Business Records:
- For self-employed or business owners: invoices, expense reports, and bookkeeping records.
Proof of Payments:
- Records of taxes already paid (if any).
Other Documentation:
- Correspondence with financial institutions.
- Evidence supporting claims of legitimate sources of income (if challenged).
Step 4 Write the Narrative
Provide a detailed narrative of your noncompliance, including what actions were taken and why. Include details about the years affected, income amounts, unreported income sources, and what tax obligations you owe.
Attach any supporting documents or other evidence that supports the narrative that you have given.
Return Part II to the CI agent assigned to your case by following the directions they give you.
Step 5 Cooperate and Wait
Cooperate with CI and provide additional information that they may request. The IRS will review the information that you have submitted to determine if you are eligible to proceed without criminal prosecution, though you will need to pay taxes, interest, and penalties for the disclosure period.
Step 6 Pay Your Tax Obligation
Finalize the tax obligations with the IRS. Full payment is expected in full, though there may be circumstances that allow for an alternate payment schedule. The IRS may allow you to set up monthly payments through an installment agreement, but typically, you will not be able to qualify for any settlements such as an offer in compromise.
Where to Submit IRS Form 14457
Both parts of IRS Form 14457 may be submitted by email (using encryption software) or eFax.
eFax: 844-253-5613
Email: vdp@ci.irs.gov
Be sure to doublecheck the IRS website for the most current information on where and how to submit IRS Form 14457
When to Hire a Professional for Help with Form 14457
You may find yourself in a situation where obtaining professional assistance is essential in completing IRS Form 14457. These may include:
- Complex cases involving multiple years or significant amounts of unreported income.
- When navigating international tax obligations (offshore accounts, FBAR compliance).
- Risk of criminal prosecution or penalties.
Hiring a tax attorney can alleviate the stress and uncertainty of what can happen when disclosing information about your tax noncompliance. A tax attorney can help make sure that your form is completed accurately, provide you with a strategy that may lessen penalties and can be the one to handle communication with the IRS.
Common Pitfalls to Avoid When Filing IRS Form 14457
When preparing this form, make sure that you avoid these common mistakes as they may increase the chances of your request being rejected.
- Incomplete or inaccurate information.
- Filing without understanding eligibility or timeliness requirements.
- Delays in responding to IRS requests for additional information.
A tax attorney can help you stay on top of everything. When looking for an attorney, make sure you find a tax resolution specialist who has dedicated experience with this program.
Get Help with Form 14457
The IRS Voluntary Disclosure Program (VDP) can be a lifeline for taxpayers who engage in willful noncompliance by providing a structured pathway to come clean with the IRS, avoid criminal prosecution, and resolve their tax liabilities.
As this may be your only chance to come back into compliance without facing criminal prosecution, it is important for you to consider working with a professional. A tax attorney can ensure that your application is accurate and is a timely submission.
If you’re considering voluntary disclosure, contact our Seattle Legal Services for expert guidance with IRS Form 14457 and beyond.