The Internal Revenue Service has upped its game in the virtual currency world with a revision of an important reporting form.

Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, lets taxpayers—who could face criminal charges for willful violation of the tax laws—pass information to the IRS voluntarily that they didn’t disclose before.

The upgraded form features an expanded section on reporting virtual currency. Other updates and additions to the form include:

• IRS Criminal Investigation now accepts photocopies, facsimiles and scans of taxpayer signatures. Taxpayers can send this form via eFax to 844-253-5613 to reduce mailing and processing times. Previously, Part II of this form had to be mailed.
• A penalty structure for employment tax and estate and gift issues.
• A check-box for the inability to pay in full.

The changes were made after the IRS got suggestions and other insight from tax professionals and stakeholders, taking into account the trends that vary depending on the type of asset held.

"This is an important form and process for people who recognize it's better to step forward and address their tax situations head-on, before facing IRS enforcement action," said Doug O'Donnell, Deputy Commissioner Services and Enforcement. "The revised form includes a number of updates, and we encourage people to review the guidelines and consult a trusted tax professional."

No escape from the law

Since the form was introduced, the IRS estimates thousands of taxpayers have used it as an option to come clean about their tax situation and possibly avoid criminal prosecution. Making a truthful disclosure, however, doesn’t mean a newly compliant taxpayer can also escape an IRS audit and full payment of taxes, interest and penalties.

Taxpayers who did not commit any tax-related crimes and want to correct their mistakes should use an option other than Form 14457. They should seek the advice of a tax professional or legal counsel to determine which option is best for them.

If using Form 14457 is called for, such voluntary disclosure has to be timely, accurate and complete. The taxpayer making the disclosure also has to go the extra mile and cooperate with the IRS to determine just what their true tax liability is and to make full payment - including interest and penalties.

What if a taxpayer can’t pay up?

A taxpayer unable to pay the tax, interest and penalties that are owed can ask the IRS to consider other payment arrangements. If a taxpayer contends they are unable to pay the total required, they have to disclose this, submitting a Form 433-A, Collection Information Statement.

However, taxpayers should remember if they seek payment options from the IRS, they will have the burden of proof to establish that they are truly unable to pay the total owed.

For more information on the Voluntary Disclosure Practice and other options for compliance, visit:

• IRS Criminal Investigation Voluntary Disclosure Practice
• IRM 9.5.11, Investigative Process – Other Investigations
• IRM 4.63.3, Withholding and International Individual Compliance – Offshore Voluntary Disclosure Program, Streamlined Filing Compliance Procedures and Voluntary Disclosure Practice

Source: IR-2022-33