IRS to Cut Penalties in Voluntary Disclosure Overhaul Covering Crypto

The Internal Revenue Service plans to substantially reduce penalties and accelerate resolutions for taxpayers who voluntarily disclose past tax violations, including cases involving cryptocurrencies, Forbes reported on Friday.

IRS Criminal Investigation Chief Jarod Koopman said the agency aims to introduce the revised voluntary disclosure program before December, with a target of resolving cases within 120 days of a taxpayer completing the required submission process. Koopman disclosed the timeline at the UCLA Extension Tax Controversy Conference.

The proposal marks a structural shift for a program that currently can take a year or longer to complete, according to Forbes. Under the overhaul, the IRS would also consider allowing taxpayers to settle outstanding liabilities through installment plans or offers in compromise. Koopman did not provide specific figures for the reduced penalties.

What does this change for crypto holders?

The revised program will not create a separate disclosure track for digital assets. Koopman told conference attendees that the IRS will handle crypto-related noncompliance through the same voluntary disclosure procedures applied to other forms of tax violations.

That design carries practical consequences. The existing voluntary disclosure program serves taxpayers whose willful failure to comply with tax laws could expose them to criminal prosecution — it is not designed for those who made unintentional reporting errors. Crypto users who deliberately omitted digital asset income or failed to file required disclosures would enter the same queue as traditional tax evaders, but with shorter timelines and lighter penalties than the current regime imposes.

For practitioners, the arithmetic matters: a case that today stretches beyond twelve months could close in roughly four, assuming the IRS meets its 120-day resolution target. That compression reduces accrued interest and penalties and shortens the period a client remains exposed to potential criminal referral. The contemplated installment plans and offers in compromise would additionally allow taxpayers with large crypto liabilities to settle without a single upfront payment — a meaningful option in a market where positions cannot always be liquidated cleanly.

Congress is moving on a separate track

Legislators are weighing a second, distinct pathway aimed directly at crypto taxpayers. Section 502 of the proposed Digital Asset Tax Certainty Act would establish a voluntary disclosure process for correcting past violations with defined penalties — including for taxpayers who made unintentional reporting errors, a population the IRS's existing program largely excludes.

The bill cleared the House Ways and Means Committee in September. If enacted, it would run alongside the IRS's revised program rather than replace it, creating two doors: an administrative route for willful noncompliance and a statutory route with predetermined penalties for inadvertent failures.

The near-term deadline to watch is the IRS's stated December target for launching the revised program. Taxpayers with unreported digital asset income must weigh whether to file under the current, slower and costlier process or wait for the formal rollout and its lower penalty structure.