Major Changes Coming to IRS Voluntary Disclosure Program

The Internal Revenue Service is undertaking significant reforms to its Voluntary Disclosure Program. According to Jarod Koopman, head of the IRS Criminal Investigation division, the overhaul aims to substantially reduce penalty amounts and compress the entire case resolution timeline to just 120 days.

Streamlined Process & Reduced Penalties

The current voluntary disclosure process often leaves taxpayers in limbo for a year or more. The reformed program sets a clear 120-day resolution clock, requiring the IRS to issue a closing agreement promptly after receiving complete filings. This change significantly reduces uncertainty for participants.

Regarding penalties, Koopman stated revised amounts will be "significantly lower" than current levels. While specific figures remain undisclosed, the direction is clear. The IRS is also evaluating more flexible payment options, including installment agreements and offers in compromise, to help taxpayers settle their liabilities.

Crypto Taxation Gets Clearer Path

Notably, the reforms will not create a separate disclosure process for digital assets. All tax violations involving cryptocurrency will be handled through the revised, unified procedure. This indicates the IRS is integrating crypto taxation into its mainstream compliance framework rather than treating it as an exceptional category.

Koopman emphasized these adjustments aim to provide a clearer, more predictable remediation path for all taxpayers—including those who may have made unintentional errors due to complex rules.

Legislative Developments Advance in Parallel

As the IRS pursues administrative reforms, legislative action is also underway. Section 502 of the proposed Digital Asset Tax Certainty Act, passed by the House Ways and Means Committee in September, would establish a separate voluntary disclosure program specifically for cryptocurrency taxpayers who made unintentional errors.

This legislative proposal complements the IRS's administrative overhaul. If enacted, it would provide additional statutory safeguards for crypto taxpayers, further clarifying their rights and obligations in voluntary disclosure scenarios. Congressional action demonstrates the U.S. is refining its digital asset tax environment through multiple channels.

Practical Implications for Taxpayers

For cryptocurrency holders with potential tax filing concerns, these developments send several important signals:

  • Timeline: The revised program is targeted for launch by December this year. Taxpayers considering voluntary disclosure should watch for official announcements.
  • Lower Costs: Reduced penalties and flexible payment options materially decrease the financial burden of correcting past tax errors.
  • Increased Certainty: The defined 120-day processing window offers greater procedural predictability.

Tax professionals recommend that, as policies become clearer, taxpayers should thoroughly organize their cryptocurrency transaction records in preparation for potential disclosure and consult with qualified tax advisors to assess their individual situations.