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When and Why to Come Forward with a Domestic Voluntary Disclosure

April 15, 2025
Weisberg Kainen Mark, PL

Some may say that the IRS isn’t a friendly government agency looking out for your best interests—it’s a revenue collection machine with vast enforcement powers. They can freeze your bank accounts, seize property, garnish wages, and, in some cases, pursue criminal charges. Their voluntary disclosure programs may sound like an olive branch, but they also exist to bring in money and gather intelligence.

For those with unreported income or tax issues, voluntary disclosure can be a way to mitigate risk, but it also means voluntarily handing over information that the IRS might not have had otherwise. Before taking any steps, it’s critical to understand the trade-offs, the differences between domestic and offshore programs, and how to minimize financial exposure.

Domestic vs. Offshore Disclosure Programs

Domestic Voluntary Disclosures – Domestic voluntary disclosure applies to unreported U.S.-based income. If your tax issues involve business revenue, rental income, investment earnings, or any other taxable income that was not properly reported, this program may be relevant.  

In a voluntary disclosure, the taxpayer must go back and amend the last 6 years of income tax returns, or file 6 years of original returns. Any years prior to that with tax issues are generally not required to be amended. 

Penalties in a domestic voluntary disclosure case generally include a one time civil fraud penalty of 75% of the unpaid taxes in only the 1 year that has the most unpaid tax.  This is in lieu of many other IRS penalties that could otherwise apply, including:

  • Failure-to-file penalties in all 6 years
  • Failure-to-pay penalties in all 6 years
  • Accuracy-related penalties (20% of unpaid taxes) in all 6 years
  • Civil fraud penalties (up to 75% of unpaid taxes) in all 6 years

Offshore Voluntary Disclosures – Historically, the IRS has more aggressively pursued offshore tax noncompliance than cases only involving domestic issues. The introduction of the Foreign Account Tax Compliance Act (FATCA) and stricter Foreign Bank Account Report (FBAR) enforcement has only intensified this approach.

Offshore Voluntary Disclosure also requires the taxpayer to go back and amend (or file original) income tax returns for 6 years including all international information returns and FBARs to report foreign bank accounts. 

The penalties include:

  • A one time civil fraud penalty of 75% of the unpaid taxes in only the 1 year that has the most unpaid tax; and
  • A 50% penalty on the highest balance in an unreported foreign bank account. 

An alternative to the Offshore Voluntary Disclosure program is the Streamlined programs, which exist for those deemed “non-willful,” a complicated legal definition based on all of the facts and circumstances. A simple failure to file an FBAR for foreign accounts can trigger massive penalties, even if the oversight was unintentional.

IRS Scrutiny Doesn’t End with Disclosure

Once your amended tax returns have been submitted through a voluntary disclosure, the IRS will assign a revenue agent to audit your returns, and will interview you.  

There are certainly pros and cons to doing a voluntary disclosure, and other alternative options should be explored. Before making any decisions about voluntary disclosure, get real legal advice. Weisberg Kainen Mark can explain all of the options and analyze them based on your individual facts and circumstances. Call (305) 374-5544 to discuss your options before deciding how to proceed with the IRS.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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