Awards & Recognition
Hawaii’s innovation, hospitality, real estate, and small business communities run on tight margins and tighter timelines. When a filing mistake turns out to be willful non-compliance, the risk profile changes instantly. The IRS has publicly shifted toward analytics-driven enforcement, added staffing, and targeted high-risk profiles. In May 2025, for example, the IRS began pursuing roughly 125,000 high-income non-filers linked to more than 100 billion dollars in financial activity.
If criminal tax exposure is even a possibility, any delay is hazardous. IRS-CI reported for fiscal year 2024 that it initiated more than 2,600 investigations, secured over 1,500 convictions, and again posted a conviction rate near 90 percent. When IRS-CI investigates and a case is recommended for prosecution, the odds of conviction are fatally high.
What Is the IRS Voluntary Disclosure Practice
The IRS Criminal Investigation Voluntary Disclosure Practice allows taxpayers with potential criminal tax exposure to self-report willful violations by making a disclosure that is truthful, timely, and complete, fully cooperating, and paying tax, interest, and applicable penalties. Entry begins with Form 14457 pre-clearance and application. The IRS updated Form 14457 in 2025 and highlighted expanded virtual-currency questions to reflect current enforcement priorities.
Voluntary disclosure is considered timely only if it occurs before the IRS starts a civil audit or criminal tax investigation, before the IRS receives information from third parties or enforcement actions, and before the government has otherwise obtained the relevant non-compliance information.
As long as a taxpayer that has willfully committed tax avoidance (potentially including intentionally non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax non-compliance through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation/prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
Civil Outcomes You Should Expect
The IRS VDP is not a penalty-free program. Civil resolution in VDP is determined case by case, but IRS guidance explains that examiners generally consider asserting the 75 percent civil tax fraud penalty under section 6663 on at least one tax year of the disclosure period, together with accuracy-related or other penalties as warranted. Where foreign accounts are involved, willful FBAR penalties may reach up to 50 percent of the highest aggregate account balance for the year of violation. By contrast, the Supreme Court’s 2023 Bittner decision capped non-willful FBAR penalties on a per-form, not per-account, basis.
Digital Assets are Squarely in Scope
Brokers must report gross proceeds from customer sales of digital assets on the new Form 1099-DA for transactions occurring on or after January 1, 2025, with phased-in basis reporting in 2026 and transitional relief to help brokers implement the rules. If you have unreported crypto income, this expanded third-party reporting greatly increases high-risk audits and investigation risk and is a strong signal to resolve past exposure proactively through the proper disclosure path.
Who Should Not Use VDP
Taxpayers whose failures were non-willful should not force themselves into the criminal VDP. For non-willful offshore issues, the IRS Streamlined Filing Compliance Procedures remain available, but they are not available once an IRS examination or CI investigation has begun. The IRS also cautions that so-called “quiet disclosures” can be audited and penalized. It is imperative to seek guidance from experienced dual-licensed counsel to select the correct path.
Do Not Try to Handle Voluntary Disclosure with Your Original Preparer
The attorney-client privilege does not protect conversations with non-lawyer tax preparers, and preparers under scrutiny can become witnesses. Hence, it is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the attorney-client privilege and work-product privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation, or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
At the Tax Law Offices of David W. Klasing, we are uniquely qualified and extensively experienced Criminal Tax Defense Attorneys, Kovel CPAs and EAs providing a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Get Back into Tax Compliance with the Tax Law Offices of David W. Klasing
At the Tax Law Offices of David W. Klasing, our dual-licensed Voluntary Disclosure Attorneys and CPAs in Hawaii evaluate your facts, map your exposure, and move quickly to:
- Secure CI pre-clearance and file a complete Form 14457 package.
- Control the disclosure record, interviews, and document flow.
- Quantify tax, interest, and the likely penalty framework, then contest overreaches.
- Coordinate offshore and domestic issues, including FBAR, FATCA, and international information returns.
- Address digital asset income, staking, DeFi, and NFT activity consistent with current IRS guidance.
We pair federal tax defense and accounting expertise to keep matters civil wherever possible, avoid criminal tax prosecution, and negotiate a sustainable civil resolution. David W. Klasing holds an A+ rating from the Better Business Bureau and a 10.0 rating on AVVo.
David’s proven proficiency is now available in Honolulu, Hawaii, at our appointment-only satellite office, providing both legal and federal tax services in one place—at a single hourly billing rate. We have introduced a flexible scheduling option where our clients can reserve a four-hour slot at any of our satellite locations. David W. Klasing will travel to any of our satellite offices to meet with you personally. This option must be preceded by a one-hour phone or GoToMeeting consultation to warrant incurring the travel expenses and opportunity costs of traveling. We have designed this service to benefit our clients, with no additional travel expenses added to your bill. Call us at 1-(808)-518-2380 or complete our online contact form today.
Our Honolulu, Hawaii Office is conveniently located at:
1003 Bishop Street, Suite 2700
Honolulu, HI 96813
Telephone: 1-(808)-518-2380
See our International Tax Law Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
