The US Internal Revenue Service (IRS) is preparing to overhaul its voluntary disclosure program, aiming to reduce penalties and accelerate the resolution of tax violations, including those involving cryptocurrencies. According to a report by Forbes, IRS Criminal Investigation Chief Jarod Koopman stated that the agency intends to introduce the revised program before December. The new framework targets resolving cases within 120 days of taxpayers completing the required submission process, a significant reduction from the current timeline, which can take a year or longer.
Koopman indicated that the overhaul would not establish a separate disclosure process for digital assets. Instead, the IRS will handle cryptocurrency-related noncompliance through the same voluntary disclosure procedures used for other forms of tax violations. While the official noted that penalties under the revised program would be substantially lower than current levels, he did not provide specific figures. The agency is also considering allowing taxpayers to settle outstanding liabilities through installment plans or offers in compromise.
The existing voluntary disclosure program is designed for taxpayers whose willful failure to comply with tax laws could expose them to criminal prosecution, rather than those who made unintentional reporting errors. In parallel, lawmakers are considering a separate voluntary disclosure program specifically aimed at crypto taxpayers, including those who made unintentional errors. Section 502 of the proposed Digital Asset Tax Certainty Act would establish a process for correcting past violations with defined penalties. This bill cleared the House Ways and Means Committee in September.
The IRS’s move to streamline its voluntary disclosure program signals a strategic shift toward operational efficiency and broader compliance engagement. By targeting a 120-day resolution window and reducing penalties, the agency aims to remove procedural friction that has historically deterred taxpayers from self-correcting. This approach suggests a recognition that lengthy, opaque processes may hinder revenue collection more than they encourage strict adherence, particularly in complex areas like cryptocurrency where reporting standards have evolved rapidly.
However, the distinction between the IRS’s administrative overhaul and the legislative proposal for a separate crypto-specific program highlights potential regulatory fragmentation. While the IRS seeks to integrate digital assets into its general framework, Congress is exploring a tailored path for unintentional errors. This dual-track development creates uncertainty for taxpayers regarding which mechanism offers the most favorable terms. Stakeholders must monitor how these initiatives interact, as conflicting timelines or penalty structures could complicate compliance strategies for entities holding significant digital asset portfolios.
