By Garrett L. Brodeur and Mia Bailey
Tax Notes Federal
July 10, 2023
The IRS considers voluntary compliance to be the “cornerstone of our tax system,” but the application form for the IRS’s voluntary disclosure practice (VDP), Form 14457, “Voluntary Disclosure Practice Preclearance Request and Application,” remains unclear in its treatment of virtual currency, a known area of noncompliance. With a recent John Doe summons and forthcoming regulations likely to bolster information gathering by the IRS, taxpayers with digital asset noncompliance will ponder whether to come clean through the VDP or by other methods. Unfortunately, the VDP provides little clarity and leaves tax practitioners unable to advise clients who are seeking to disclose digital asset noncompliance.
Form 14457 could be revised to provide eligible taxpayers a clearer path to voluntarily disclose their digital asset noncompliance. This article highlights several issues with the form’s treatment of virtual currency and digital assets and offers proposed revisions.
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