IRS Nears Revamped Crypto Tax Voluntary Disclosure Program With Lower Penalties and Faster Resolutions
Key Takeaways
- •The IRS plans to roll out a revamped voluntary disclosure program covering digital assets before December, according to chief tax compliance officer Jarod Koopman.
- •The agency aims to resolve disclosure cases within 120 days after taxpayers complete required submissions, sharply reducing current processing times that can exceed a year.
- •The revised program is expected to substantially cut penalties and may allow taxpayers to settle unpaid liabilities through offers in compromise or installment arrangements without paying the full amount upfront.
- •The IRS will not create a separate disclosure program for crypto, as digital assets will be handled through the same process as other taxable income and remain classified as property for federal tax purposes.
- •Specific penalty reductions, eligibility standards, and information requirements have not yet been announced, leaving practitioners awaiting final procedures to assess the changes.
The Internal Revenue Service is “very close” to launching a revamped voluntary disclosure program covering digital assets, with a rollout targeted before December, according to Jarod Koopman, the agency's chief tax compliance officer and head of Criminal Investigation.
Voluntary disclosure programs give taxpayers a structured way to report previously unaddressed liabilities before the IRS opens an examination or criminal investigation. The practice is generally reserved for willful violations, and coming forward under it can help taxpayers avoid criminal prosecution, though civil penalties still apply.
Speaking at the UCLA Extension Tax Controversy Conference on Oct. 23, Koopman said the IRS aims to resolve cases within 120 days after taxpayers complete the required submissions — a significant of a process that can currently leave applicants waiting a year or longer.
The revised program is also expected to reduce penalties substantially and make it easier for taxpayers to address unpaid tax liabilities without paying the full amount upfront. Koopman said the agency is exploring offers in compromise and installment arrangements to help taxpayers settle outstanding balances without requiring full payment at the outset.
Koopman also ruled out creating a separate voluntary disclosure program specifically for crypto, saying digital assets will be handled through the same process as other sources of taxable income. Under long-standing IRS guidance, digital assets are treated as property for federal income tax purposes, meaning sales, exchanges and certain payments can trigger taxable events that must be reported like any other income. Taxpayers whose conduct was non-willful may instead be able to use other compliance mechanisms, including qualified amended returns when applicable.
While the proposed changes are intended to address long processing times, steep financial penalties and payment difficulties, the IRS has not yet disclosed the specific penalty reductions, eligibility standards or information requirements. The IRS has asked taxpayers about virtual currency and digital asset activity on federal income tax returns since 2019, with the question appearing on the front page of Form 1040 since the 2020 tax year. Tax practitioners will need to review the final procedures to determine how much the changes alter taxpayers' incentives to disclose past noncompliance before the IRS discovers it.
Source: CryptoBriefing
