When a taxpayer files a fraudulent return but amends it before the IRS begins a criminal investigation, the IRS has a long-standing policy that it will not refer that taxpayer to the Department of Justice for prosecution. This policy is known as the Voluntary Disclosure Policy. Such a policy allows taxpayers who have fallen off the tax rolls to get right with the government, which in turn helps the government by increasing revenues without the expense of investigation and enforcement. Over the Policy's history, the IRS has tinkered with it, at times keeping it in written form and at other times following it without having it in written form.

When an agency policy or regulation serves to protect the constitutional rights of citizens, it binds the agency. The Voluntary Disclosure Policy provides protection from prosecution, encouraging taxpayers to give up the right to remain silent. Thus, the IRS is bound by the Policy. Nevertheless, the IRS has denied the benefits of the Policy in some recent cases, which has led to some uncertainty. As with other aspects of tax law and tax policy, whether to retain a formal Voluntary Disclosure Policy is a difficult issue with many considerations. This article provides background on the Voluntary Disclosure Policy, sets forth the rule that requires agencies to adhere to their own rules, analyzes some recent cases that involve the Policy, and delineates some of the challenges policymakers face.