Instructions for Form 14457 Voluntary Disclosure Practice Preclearance Request and Application

If you have willfully failed to comply with your tax obligations, you may be able to avoid criminal exposure through the IRS's criminal investigation voluntary disclosure. To apply, you must file Form 14457 before the IRS contacts you about the matter. 

The following guide outlines how to complete Form 14457, and it outlines changes the IRS made to the program in 2024. This information is for your reference only. Although there are many IRS forms that you can easily file on your own, this is not one of them. Before completing this form, consult with a tax professional. A tax attorney will be able to tell you if you should file this form or take another route. In the meantime, here is an overview of the instructions. 

The Basics:

• Who? Taxpayers who willfully committed a tax-related crime.
• What? A full disclosure of unreported income, offshore assets, digital currency, etc.
• When? You must file before the IRS contacts you or selects you for an audit.
• Why? The Voluntary Disclosure Program gives you relief from criminal exposure while letting you get back into compliance.
• How? Work with a tax attorney to complete the process and talk about alternatives.

Who Should File Form 14457?

Before doing anything, make sure that this is the right form for the situation. You should only file this form if all of the following three elements apply:

1. You willfully committed a tax crime or a tax-related crime.
2. You are eligible to make a voluntary disclosure.
3. You want to get back in compliance with the IRS and avoid prosecution.

You should not file this form if any of the following apply:

1. You made a mistake but didn't commit a tax crime.
2. Any of your unreported income is from illegal activities, including activities that are legal on the state level, such as selling cannabis.

Distinguishing between a mistake and willfully committing a tax crime can be difficult for lay taxpayers. To get guidance, consult a tax attorney with experience with this program.

Eligibility for Making a Voluntary Disclosure

As noted above, only eligible taxpayers can make a voluntary disclosure. To be eligible, you must be willing to cooperate with the IRS to determine your tax liability and help the IRS investigate anyone involved in your non-compliance. 

Once you make the disclosure, you must be ready to pay in full or make arrangements with the IRS. Finally, you must make a timely disclosure, which generally means that you have to contact the IRS before they contact you or before they get wind of the situation from another party.

Voluntary Disclosure Updates for 2024

In 2024, the IRS rolled out a few changes to Form 14457 including the following:

• Requirement to admit that you acted willfully.
• Check box affirming you have all the required documents for the examiner.
• Increased focus on digital assets, rather than digital currency.
• Commitment to pay in full in a lump sum or through timely monthly payments.
• Corporations and officers can use a single form to complete a disclosure.

The 2024 updates for documentation are much stricter than previous versions of this form. In the past, the form noted that an examiner would contact you about your documents. Now, you must note that you have all of the required documents ready for the examiner when they contact you.

Here are the required documents:

• Delinquent or amended tax and information returns
• Statute extensions for all applicable income tax and FBAR years
• Accounting records and supporting documents
• Bank statements and account opening documents
• Advice provided by a professional
• Any materials you received from a promoter, enabler, or facilitator of tax noncompliance
• Full payment of tax, interest, and penalties

Although "full payment" is listed as a required "document", the updated form still contains a box that you can select if you need to make payments on your tax liability. In most cases, the IRS will allow you to set up an installment agreement. However, as part of the program's updated terms, you now must agree to pay in full or set up a payment plan on the full balance. You cannot get partial payment installment agreements or settlements on these tax liabilities. 

You also must make an admission that you acted willfully. Although willful actions have always been a part of this program, now, you must sign and affirm that you understand that aspect of the process.  If you don't, the IRS can deny your Voluntary Disclosure request, and you will have no appeal rights. Because the concept of willful is very specific, you should consult with an attorney. Again, the voluntary Disclosure Program is not for people who made mistakes or oversights. It's for people who acted willfully. 

Additionally, you must disclose all of your digital assets. In the past, the form referred to digital currency, but now, it's clear that you must include all digital assets as well as exchange names, transactions recorded on a public blockchain, peer-to-peer transactions, dates of transactions, and buyer info for exchange and peer-to-peer transactions. 

The 2024 updates also require taxpayers to note an estimation of their overstated deductions for the disclosure period. Previously, you only had to note your estimated unreported income. Finally, if a corporation is making a disclosure that also involves an officer, they can use a single form, whereas previously they had to complete two separate forms. 

How to Complete Form 14457

You must complete this form in two steps. First, to request preclearance, complete Part I and submit it to the IRS. Then, if the IRS accepts your request, complete Part II within 45 days and send the info to the IRS. You can request one 45-day extension, but the IRS only accepts extension requests on a case-by-case basis. As of 2024, the IRS will only accept one extension request.

Do not send any payments with this form. Keep reading for more detailed instructions on how to complete Parts I and II.

Instructions for Part I of Form 14457

Line 1. 

Tick the box next to the type of taxpayer (individual, trust, partnership, executor, or corporation) making the disclosure. If you're making a disclosure for both a corporation and a corporate officer, the officer should tick individual, and the corporation should file its own Form 14457. Estate executors should tick "executor", and then, they should write the name of the decedent on the spouse line of the form. 

Line 2.

Line two asks what type of disclosure you want to make. The IRS assumes that all disclosures related to income tax, but you should tick any additional issues that apply including the following: domestic issues, offshore issues, estate and gift issues, employment tax issues, and virtual currency issues. If desired, tick "other" and write a description of the issues. 

Line 3.

Note the years related to the disclosure. The IRS says this is a tentative answer. Depending on the situation, the disclosure period may ultimately include more tax periods than originally noted on Form 14457. 

Lines 4, 5, and 6.

Lines four and five are for the taxpayer's details, including name, tax ID number, phone number, address, occupation, and citizenship status. You must also list details from all of your passports. If relevant, also note details about your spouse. Again, if you're an executor, you should put the decedent's information in the spouse section. 

Line six is for your representation. If you hire a tax professional to help you, their information will go in this section. Tick the box on 6i if you want IRS correspondence to go to the taxpayer making the disclosure. Otherwise, the IRS will send all letters to the representative by default. 

Line 7.

Here, you should list all entities related to the non-compliance period, and you should also list all entities that you owned either directly or indirectly during the disclosure period. Note the type of entity, EIN, phone number, address, and names of officers. Note that on line 12, you will list all financial accounts that were associated with your non-compliance, and you will link them to the relevant entities listed on line 7.

Lines 8 - 11.

Complete this section thoroughly but carefully. Answering yes to any of these questions can disqualify you from making a voluntary disclosure. 

Line eight asks if you believe the IRS has info about your tax liability. If you answer yes, explain why. Line nine asks if you, your spouse, or any associated entities have received a notice of deficiency from the IRS. 

Line 10 has you explain if you, your spouse, or any related entities are currently litigating (or have litigated in the past) issues related to the disclosure periods. If so, note the case caption, docket number, and the court.

Line 11 covers audits, criminal investigations, and income from illegal activities. You must declare if you, your spouse, or any related entities have been contacted about an audit, are under criminal investigation, or have income from illegal source activities. 

Line 12.

As noted in the instructions for line seven, you should list all financial accounts related to the non-compliance and then note which entity they are related to. Note the financial institution name, phone number, address, your account number, date opened, date closed, and names of account holders. 

For example, say that you are making a voluntary disclosure about unreported business income. Rather than putting revenue checks in your business account, you had clients write them to you directly, and then you deposited them in your personal account. In this case, you would list details for both bank accounts and then link them to the business entity listed on line seven.

Line 13. 

Kist all of the virtual currency that you owned directly or indirectly in the disclosure period. Include all crypto that you acquired and/or disposed of during the disclosure period. You need the name of the currency, identifying numbers, date acquired, date deposited, and whether it was domestic or offshore. If the IRS accepts your preclearance, you may need to provide more information about your crypto holdings and transactions. 

Instructions for Part II of Form 14457

If the IRS Criminal Investigation accepts your preclearance, you can complete Part II. You can start filling out this part with your tax pro to get ready before you get your preclearance decision, but never send in this form without preclearance approval. 

You can request one deadline extension of up to 45 days. To do so, email [email protected] or fax your request to 844-253-5613. Again, don't do this until you have the preclearance approval. Take a look at the line-by-line instructions now.

Lines 1 - 3.

Line one is for your and your spouse's personal information. Also, note your representative. This information should match the details you shared on your preclearance request. If you anticipate that you cannot pay the tax liability in full, tick the relevant box on line one.

On line two, note the source of the funds related to the disclosure. The options are U.S. source, foreign source, gift/inheritance, virtual currency, and other. You may need to tick more than one box.

Line three asks if you filed your tax return as a bona fide resident of a U.S. territory. If so, you must note the territory and whether or not you're also submitting a voluntary disclosure to the territory.

Lines 4 and 5.

Here, you will note your unreported income for each tax year. If you have offshore issues, note the tax year and highest total balance of all your foreign accounts or the value of undeclared foreign assets. On both lines, note each tax year separately.

Line 6.

If you have offshore tax years, you should answer the following questions on line seven for both you and your spouse. Skip this section if you don't have offshore tax issues. 

• Has a foreign government, a foreign financial institution, or anyone else told you that your offshore account records related to the disclosure period are susceptible to being turned into the U.S. government based on an official request?
• If you answered yes to the above question, did you or anyone else issue a court or other official document to oppose the request for records?
• If you answered yes to the above question, were the documents provided to the U.S. Attorney General as required by 18 USC §3506?

Line 7. 

Line seven is probably the most important part of Form 14457. Work with a professional to ensure you complete this section as effectively as possible. First, on 7a, write a description of your personal and professional background. The IRS uses this information to get a deeper understanding of your knowledge base of tax codes and processes.

On 7b, you must disclose any advisors who worked with you during the disclosure period. Include advisors who helped to facilitate the noncompliance, but also include advisors who weren't aware of the issue. The list should include your tax preparer, accountant, financial advisors, etc. You do not have to include details about the conversations you have with your tax attorney while completing this form.

Finally, on 7c, you should present a narrative description of your noncompliance that includes all favorable and unfavorable details. The IRS wants as much detail as possible in this section. When noting the entities involved in the noncompliance, make sure to use identifying details so that the IRS can match the entities in this section to the entities listed on line seven of Part I.

You must be transparent about entity ownership. Include a chart if there are multiple layers of owners. List all owners and their own percentage, and then explain how they were involved in the noncompliance.

Specific types of disclosures require specific details, including the following:

• Decedents - Explain the decedent's intent and actions and the executor's intent and actions. Also, note who has control of the decedent's and estate's underlying assets.
• Offshore tax issues - Note the sources of the funds for all your foreign assets. Then, outline all of the withdrawals, deposits, loans, and investment decisions that you made during the disclosure period.
• Virtual currency - Note how you acquired the virtual currency, how you held the assets, the names of the currencies, and estimates of your cryptocurrency transactions during the disclosure period. 

The IRS may also request additional info about virtual currency, in particular, such as the number of units owned, the basis of disposed assets, and other details.

Signatures

Finally, you and your spouse (if applicable) should sign the form. The IRS will accept photocopies, facsimiles, and scans, but you cannot sign this form electronically. If you're an executor, you should sign on behalf of the decedent or estate, and you should also include a certified letter or court certificate showing the present status of the estate. 

What to Expect After You File

The IRS will contact you if they need additional information after you file. In the past, the agency usually reached out through the mail, but now, they will use email when you apply for this program. If your application is accepted, you must set up payments or pay in full quickly. If they don't accept your applcation, talk with an attorney about the steps to take next.

Get Help With Criminal Voluntary Disclosures

Tax crimes are very serious, and to protect yourself, you should consult with a tax attorney. Don't call the nationwide tax relief firms that claim to solve tax problems but are generally staffed with under-experienced, overworked tax pros. 

Instead, use TaxCure to find a local attorney experienced with disclosures. Search for attorneys in your area. Then, filter your results by experience level. Finally, check out the reviews and set up a free consultation to find the right attorney for your needs.