Kostelanetz partners Megan L. Brackney, Michael Sardar, Bryan C. Skarlatos, and associate Mike Waalkes were among the principal authors of the New York State Bar Association Tax Section's report on “Proposed Updates to the Internal Revenue Service Voluntary Disclosure Practice.”
In December 2025, the IRS requested public comment on proposed updates to the Service's Voluntary Disclosure Program (VDP). Pursuant to this request, the Tax Section of the New York State Bar Association (NYSBA) authored a report providing comments and recommendations to ensure the VDP remains an effective and accessible method for taxpayers to become compliant.
The NYSBA Tax Section report addresses three key areas:
1) The proposed requirement that taxpayers make full payment of their taxes, penalties, and interest within a short period following conditional acceptance into the VDP.
2) The proposed shortened timeline for submitting original and amended tax returns and related filings.
3) Elements of the revised penalty framework under proposed VDP changes, including income tax penalties, FBAR, international information returns, and estate and gift tax matters.
The NYSBA Tax Section explains in its report that some of the proposed updates to the VDP may improve the efficiency and predictability of the program, but the terms may not be reasonable enough to encourage noncompliant taxpayers to participate.
The report raises concerns that the proposed changes may disadvantage taxpayers who want to participate but lack the ability to pay the tax, penalties, and interest, within the proposed expedited timeline. The report notes that those taxpayers may include people who are victims of scams, fraud, business failure, domestic violence, and other adverse and unanticipated circumstances that could impact their ability to pay. In those and other circumstances, requiring immediate full payment could discourage taxpayers from making a voluntary disclosure.
The Tax Section recommends that the VDP framework permit installment agreements or offers in compromise based on the taxpayer’s ability to pay.
The Tax Section also raised concern with the proposed 90-day period for submitting original or amended tax returns. The current VDP framework already prioritizes timeliness, and the proposed 90-day period is unlikely to increase efficiency or offer added benefits to VDP administration. A strict timeline could make participation in the VDP untenable for many taxpayers, as paperwork and logistical challenges can arise during the tax preparation process. They may need more time to gather necessary paperwork, including records from foreign third parties and financial institutions that may have delays in issuing documents or require translation.
The Tax Section agreed with the IRS’s proposal to overhaul the VDP penalty structure, but with room for improvement regarding each penalty area. They urge the IRS to provide additional clarity regarding penalty computation and application under this revised framework, and to consider changing certain penalties or utilizing a more tailored approach towards taxpayers participating in the program.
You can learn more about the proposed changes to the IRS VDP program, and the NYSBA Tax Section’s suggestions, by reading the complete report here.
About Megan
Megan is a tax controversy attorney with a distinguished track record of delivering exceptional results for clients facing complicated and difficult tax issues. Megan is the Chair of the American Bar Association Section of Taxation. She is also a frequent speaker and contributor to local and national conferences on taxation, ethics in tax practice, IRS penalties, and civil tax controversy, and teaches courses in tax procedure at New York University School of Law
About Michael
Michael has extensive experience on a wide range of tax controversy and white-collar criminal defense matters, and he represents clients in all stages of civil and criminal tax controversies before the IRS, state tax authorities, the Department of Justice, and local prosecutors. Additionally, Michael represents clients in gift and estate tax audits, where he is called upon to assist taxpayers in challenging the IRS’s valuation of gifts and bequests and/or the includability of certain transfers.
About Bryan
Bryan focuses his practice on assisting clients with navigating tax penalties and voluntary disclosures. He provides expert testimony on tax penalties to governmental bodies and teaches courses on tax penalties at New York University School of Law, where he also created and co-chairs the NYU Tax Controversy Forum. Bryan is recognized by Super Lawyers as one of the Top 100 Lawyers in New York and Best Lawyers in America has twice named Bryan “Lawyer of the Year” for Tax Litigation in New York.
About Mike
Mike is an associate with Kostelanetz LLP. He focuses his practice on civil and criminal tax controversy matters, including audits, promoter investigations, voluntary disclosures, U.S. Tax Court litigation, and criminal tax investigations. Prior to joining the firm, Mike served for two years as a judicial law clerk for Judge Joseph W. Nega of the U.S. Tax Court. Mike is an adjunct professor at Villanova University’s Charles Widger School of Law, where he co-teaches a course on federal tax practice and procedure in the school’s graduate tax program.