IRS Crypto Tax Disclosure Overhaul: Lower Penalties, Faster Reviews

The US Internal Revenue Service is preparing to overhaul its voluntary disclosure program, potentially reducing penalties and accelerating resolutions for taxpayers who disclose past tax violations, including those involving cryptocurrencies. The changes were reported by Forbes, which cited IRS Criminal Investigation Chief Jarod Koopman. The agency aims to introduce the revised program before December and resolve cases within 120 days of taxpayers completing the required submissions.

The overhaul would not establish a separate disclosure process for digital assets. Instead, the IRS plans to handle cryptocurrency cases through the same voluntary disclosure procedures used for other tax noncompliance. The existing program is intended for taxpayers whose willful violations could result in criminal prosecution, rather than those who made unintentional reporting errors. Under the proposed changes, crypto tax cases would remain subject to that same distinction.

Koopman said penalties under the revised program would be substantially lower than current levels, although he did not provide specific figures. The IRS is also considering giving taxpayers more flexibility to settle outstanding tax liabilities through installment plans or offers in compromise. Forbes reported that the current voluntary disclosure process can take a year or longer to complete.

Lawmakers are pursuing a separate initiative for crypto taxpayers who reported errors unintentionally. Section 502 of the proposed Digital Asset Tax Certainty Act would establish a process for correcting past violations with defined penalties, differing from the IRS program focused on willful noncompliance. The legislation cleared the House Ways and Means Committee in September.