The Internal Revenue Service (IRS) has announced plans to address cryptocurrency-related tax issues through its general voluntary disclosure program, an initiative intended to consider lower penalties and offer payment plans for affected U.S. taxpayers. The move signals a potential easing of compliance burdens for cryptocurrency holders reporting past tax issues, though specifics on penalty reductions and eligibility have not yet been finalized.

By handling crypto matters within its existing voluntary disclosure framework, the IRS is keeping digital assets within the same disclosure process used for other tax violations rather than establishing a separate, crypto-specific channel. As reported by CryptoBriefing, the development suggests a shift in the agency's approach to cryptocurrency tax compliance and reflects an intent to streamline processes across tax issues.

The compliance stakes for U.S. holders are substantial: the IRS has treated virtual currency as property for federal income tax purposes since2014, meaning that selling, exchanging, or otherwise disposing of digital assets can trigger capital gains reporting obligations on each transaction.

How the Voluntary Disclosure Program Works

The IRS's voluntary disclosure practice is a long-standing mechanism that allows taxpayers to come forward about previously unreported income or other past noncompliance. Taxpayers who qualify generally face civil penalties but may resolve their liabilities while avoiding criminal prosecution for willful evasion. Taxpayers whose prior noncompliance is deemed nonwillful have generally been directed to separate streamlined filing procedures instead, making voluntary disclosure the route most relevant to those whose conduct could be viewed as willful. In 2019, the IRS issued updated guidance clarifying how the practice applies to virtual currency transactions, superseding interim procedures introduced the prior year.

The agency has escalated its cryptocurrency tax enforcement efforts over several years. It began asking taxpayers about virtual currency on federal individual income tax returns in 2019 and moved the question to the first page of Form 1040 in 2020. The IRS has also obtained court-authorized John Doe summonses against major U.S. exchanges, including Coinbase and Kraken, to identify account holders who may have failed to report digital asset transactions. Transaction visibility is set to increase further: under broker reporting regulations finalized in 2024, brokers are required to report digital asset sales on Form 1099-DA beginning with 2025 transactions, giving the IRS transaction-level data directly from intermediaries.

What Remains Unclear

The IRS has not yet published details on how penalty reductions will be structured or which taxpayers will qualify for the program's benefits. Observers are watching for formal announcements or clarifications — including penalty terms, eligibility criteria, and any filing mechanics specific to digital assets — that could define the regulatory treatment of cryptocurrency for U.S. tax purposes. Until those details are released, it remains unclear how the IRS will calculate reduced penalties or assess eligibility for cryptocurrency-related disclosures under the program.