The Internal Revenue Service is preparing an overhaul of its voluntary disclosure program that would cut penalties and shorten case timelines, with violations tied to digital assets falling under the same framework. Jarod Koopman, who heads Criminal Investigation at the IRS, presented the plan, according to a COINOTAG report published on October 23, 2026.

Under the proposed changes, the agency would aim to resolve disclosure cases within approximately 120 days. The overhaul would also place digital-asset-related violations under the same framework rather than handling them separately. If met, that roughly four-month window would compress a pipeline in which cases typically pass a Criminal Investigation review of a pre-clearance request before a full submission is even accepted.

A Long-Standing Compliance Channel

The voluntary disclosure practice is the IRS's principal mechanism for taxpayers who willfully failed to report income or pay tax. Those who come forward can generally avoid criminal prosecution, but in exchange they must make a complete disclosure and pay back taxes, interest, and penalties, including the 75% civil fraud penalty that applies to willful underpayment. Cases typically begin with a pre-clearance request reviewed by IRS Criminal Investigation before a full submission is accepted.

The current practice traces its structure to the offshore voluntary disclosure programs the IRS operated between 2009 and 2018, which concentrated on undisclosed foreign accounts. Those programs were closed in September 2018, after which the agency consolidated its offerings into a single voluntary disclosure practice. Taxpayers whose conduct is judged non-willful have instead been directed to separate streamlined filing procedures.

Digital Assets Move Under the Same Framework

The IRS has treated virtual currency as property since its 2014 guidance, making sales, exchanges, and payments involving digital assets taxable events. A yes-or-no question about virtual currency, since broadened to cover digital assets, has appeared on federal individual income tax returns since tax year 2019, putting filers on annual notice of their reporting obligations.

Criminal Investigation, the division Koopman leads, has made digital asset enforcement an expanding priority, pursuing matters involving unreported gains and fraud tied to cryptocurrencies. Bringing crypto-related tax violations under the standard disclosure framework would give non-compliant holders a clearly defined path to regularize their filings on the same terms as other taxpayers.

The proposal also lands amid an expanding paper trail for digital asset activity. Rules finalized by Treasury and the IRS in 2024 require digital asset brokers to report customer sales and exchanges on a new Form 1099-DA, with initial filings covering 2025 transactions — a layer of third-party reporting that did not exist when the digital asset question first appeared on tax returns in 2019.

If adopted, the changes would mark a notable update to a framework that has remained largely in place since the offshore-focused disclosure programs were wound down in 2018. What to watch from here is formalization: the 120-day target and any revised penalty structure would take practical effect only once the IRS updates the practice's published procedures and guidance.

This article is based on reporting first published by COINOTAG: https://en.coinotag.com/irs-120-day-voluntary-disclosure-crypto-tax-penalties