IRS Prepares Overhaul of Voluntary Disclosure Program to Lower Penalties and Accelerate Tax Resolutions

The United States Internal Revenue Service is preparing a significant overhaul of its voluntary disclosure program, with sweeping plans designed to reduce financial penalties and dramatically accelerate the resolution of tax violations. According to a recent report by Forbes, the upcoming changes will encompass a wide array of tax noncompliance issues, including those involving the fast-growing and heavily scrutinized cryptocurrency sector.

Speaking at the recent UCLA Extension Tax Controversy Conference, IRS Criminal Investigation Chief Jarod Koopman outlined the agency’s ambitious timeline and objectives. According to Koopman, the tax agency aims to officially introduce the revised program before December. A cornerstone of the proposed overhaul is a strict operational target: the IRS wants to completely resolve participating cases within just 120 days of taxpayers successfully completing the required submission process.

This projected turnaround time represents a massive departure from the current administrative reality. Under the existing framework, navigating the voluntary disclosure process can frequently stretch on for a year or even longer, consuming substantial time and resources for both taxpayers and the agency alike. By streamlining the pathway to compliance, the IRS hopes to encourage more individuals with undisclosed liabilities to come forward proactively.

Crucially, the upcoming overhaul will not establish a separate, standalone disclosure process specifically tailored for digital assets. Koopman clarified to conference attendees that the IRS intends to handle digital assets seamlessly through the exact same voluntary disclosure procedures that are currently utilized for more traditional forms of tax noncompliance. Whether dealing with offshore accounts, hidden cash income, or unreported digital asset transactions, the administrative route for confession will remain unified under one overarching program.

In addition to faster case resolutions, the IRS official indicated that the financial penalties enforced under the revised program will be substantially lower than those currently imposed on noncompliant taxpayers. While Koopman stopped short of providing specific monetary figures or precise penalty percentages during his remarks, the prospect of reduced financial repercussions is expected to incentivize greater participation. Furthermore, to ease the burden of settling past debts, the agency is actively considering allowing taxpayers to clear their outstanding liabilities through flexible installment plans or formal offers in compromise.

The existing voluntary disclosure program serves a very specific population within the broader tax ecosystem. It is primarily intended for taxpayers whose willful failure to comply with federal tax laws could otherwise expose them to severe criminal prosecution. It is explicitly not designed for individuals who merely made unintentional reporting errors or simple mathematical mistakes on their annual filings. For those facing potential criminal exposure, the current program offers a structured way to mitigate the risk of prosecution in exchange for full cooperation, disclosure, and the payment of back taxes, interest, and fraud penalties.

While the IRS works internally to reform its administrative framework, lawmakers on Capitol Hill are simultaneously weighing a separate legislative voluntary disclosure program aimed explicitly at cryptocurrency taxpayers, including those who may have made honest, unintentional reporting errors. This legislative effort is encapsulated in Section 502 of the proposed Digital Asset Tax Certainty Act.

Unlike the IRS’s administrative program, which focuses heavily on willful tax noncompliance and the shadow of criminal liability, the proposed congressional bill would establish a distinct, dedicated process for correcting past digital asset violations with clearly defined statutory penalties. The inclusion of unintentional errors within the scope of the congressional bill addresses a persistent pain point for everyday crypto users, who often grapple with complex cost-basis tracking, airdrops, hard forks, and staking rewards without malicious intent to evade taxes. Momentum behind this legislative fix grew notably when the bill successfully cleared the House Ways and Means Committee in September, signaling a growing bipartisan awareness in Washington of the unique compliance challenges inherent to the digital asset economy.

As the December rollout window for the revised IRS program approaches, tax professionals, legal experts, and digital asset holders are closely monitoring how the dual tracks of administrative reform and congressional legislation will ultimately intersect. Together, these simultaneous developments underscore a broader regulatory push to bring clarity, efficiency, and proportionality to tax enforcement in an increasingly complex financial landscape.