What's the Difference Between Voluntary Disclosure and a Tax Audit?

If you've made errors on past tax returns or failed to report income, voluntarily coming forward to fix the problem is treated very differently by the IRS than being caught in an audit. A voluntary disclosure is when you proactively contact the IRS to report previously unreported income or correct prior mistakes — this typically results in reduced penalties, better payment options, and in most cases avoids criminal prosecution. An audit is when the IRS initiates a review of your return, at which point you lose the advantage of coming forward voluntarily. The IRS's Voluntary Disclosure Practice is a formal program particularly aimed at taxpayers with unreported offshore accounts or significant underreporting, while simpler errors can often be corrected by filing an amended return. The key benefit of voluntary disclosure is that the IRS looks more favorably on taxpayers who acknowledge and correct mistakes than on those who are caught.