IRS Says It Will Cut Penalties and Target 120-Day Resolution for Voluntary Tax Disclosures, Crypto Included, Before December

The IRS says it is rewriting the rules for people who come forward about past tax violations. That includes people sitting on unreported crypto gains.

Jarod Koopman, chief of IRS Criminal Investigation, laid out the plan at the UCLA Extension Tax Controversy Conference. The agency aims to roll out a revised Voluntary Disclosure Program before December, according to Forbes, which reported his remarks Friday, Oct. 23.

What the IRS says it will change

Koopman said the target is to resolve cases within 120 days of a taxpayer completing the required submission. The current process can take a year or longer.

Penalties under the revised program will be substantially lower than today's, Koopman said. He did not give figures.

The agency is also weighing ways to let taxpayers settle what they owe through installment plans or offers in compromise. For someone with a large back-tax bill and no lump sum, that could decide whether they come forward at all.

Crypto will not get its own track. Koopman said digital assets will go through the same voluntary disclosure procedures used for every other kind of tax noncompliance.

Who the program is for

The existing IRS program is built for taxpayers whose willful failure to comply could expose them to criminal prosecution. It is not designed for people who made honest reporting mistakes. Those taxpayers typically fix errors through amended returns.

Acceptance into the program is not immunity. IRS guidance says so, and the program does not guarantee that criminal charges will never be pursued. What it offers is a recommendation process for taxpayers who disclose before the agency finds the problem on its own.

That makes the IRS overhaul a program for people who knew better, and a faster, cheaper exit for them. Koopman has not said how far the penalty cuts go, so how generous the offer is remains unknown.

Congress is working a separate track

A different proposal targets the honest-mistake crowd. Section 502 of the Digital Asset Tax Certainty Act (H.R. 10357) would require the Treasury secretary to set up a dedicated Digital Asset Voluntary Disclosure Program within 12 months of enactment.

The House Ways and Means Committee approved the bill 38-5 on Sept. 16. It still needs to pass the full House and the Senate and get the president's signature.

The penalty schedule is written into the text:

• Taxpayers who certify under penalty of perjury that their violations were neither fraudulent nor willful would owe 0% on the first $25,000 of annual tax deficiency and 5% above that, if they file within the program's first 12 months.
• Taxpayers who decline to certify would owe 25% on the first $25,000 and 40% above it. Rates rise for anyone who files after the first year.
• Filers would generally have 24 months from the program's start to submit amended returns.

The bill also includes limited civil penalty relief. Taxpayers who do not certify would be shielded from criminal referral based only on information they lawfully disclosed under the program.

The perjury clause cuts both ways. A false certification of non-willfulness can expose a taxpayer to perjury liability. Sharon Eubank, a certified public accountant, advised taxpayers to review trading histories across exchanges and wallets to find the years needing amended returns, and to confirm the errors truly lacked intent.

Andrew Gordon, executive director of Digital Asset Tax Action, said the provision has drawn little attention even though it would help many taxpayers.

Why the timing matters

This is the first filing season under the new Form 1099-DA broker reporting rules, which require custodial platforms to report digital asset sales directly to the IRS. That makes it far easier for the agency to match returns against reported transactions.

The new reporting only covers going forward. It does not untangle older trades spread across multiple platforms and wallets, which is the gap Section 502 is aimed at.

Tax practitioners quoted in the discussion put it plainly: staying quiet and hoping the IRS never notices is a riskier bet than it used to be.

What to watch

Two things are unsettled. The IRS has not published the revised program's penalty rates, installment terms, or eligibility details, and its pre-December target has not yet been met. Section 502 has cleared only one committee, so its 0% and 5% rates are a proposal, not law.

Until the IRS releases the actual program, taxpayers with unreported crypto income cannot compare its terms against the penalty schedule Congress is considering.