IRS Plans Faster, Cheaper Crypto Tax Disclosure
The IRS is preparing to overhaul its voluntary disclosure program, with a goal of resolving cases within 120 days and cutting the penalties taxpayers currently face. If you've been putting off dealing with unreported crypto gains, this is the development you've been waiting for. Here's what we know so far, what it means for how crypto is taxed in the US, and what you should be doing right now.
What the IRS Is Planning
IRS Criminal Investigation Chief Jarod Koopman outlined the proposed changes at the UCLA Extension Tax Controversy Conference. He said the agency intends to launch the revised program before December, targeting a 120-day resolution window from the point a taxpayer completes the required submission process. That's a significant compression compared to the existing system, which can take a year or longer to work through.
Lower penalties and new payment options
Koopman indicated that penalties under the revised program would be substantially lower than those currently in place. He didn't give specific numbers, but the direction is clear: the IRS wants to make voluntary disclosure a more attractive option than it currently is. The agency is also considering letting taxpayers settle outstanding liabilities through installment plans or offers in compromise, rather than requiring a lump-sum payment upfront. For crypto holders sitting on years of unreported gains, that flexibility could make a real difference to cash flow.
Crypto stays in the general program, not a separate track
One detail worth paying close attention to: the planned overhaul won't create a standalone digital asset disclosure process. According to Koopman, the IRS will handle crypto tax violations through the same voluntary disclosure procedures it uses for all other forms of noncompliance. That means if you want to use the program to correct past crypto tax mistakes, you'll go through exactly the same channel as someone disclosing offshore accounts or unreported business income.
This decision has practical implications. It signals that the IRS views crypto noncompliance as a mainstream enforcement priority rather than a niche issue requiring its own rulebook. It also means the protections and limitations of the general program apply equally to digital asset disclosures.
How Crypto Is Taxed in the US Right Now
Before walking through what the overhaul changes, it helps to be clear on the existing framework. Crypto is treated as property for US federal tax purposes, a position the IRS has held since its 2014 guidance. That means every time you sell, swap, or spend cryptocurrency, you're potentially realising a capital gain or loss that needs to appear on your tax return.
Short-term versus long-term rates
If you held the asset for a year or less before disposing of it, any gain is taxed as ordinary income, at rates that can reach 37% depending on your bracket. Hold for longer than a year and you qualify for preferential long-term capital gains rates of 0%, 15%, or 20%. Crypto received as income, whether from mining, staking, or payment for services, is taxed as ordinary income at the time you receive it, with the fair market value on that date becoming your cost basis for any future disposal.
What counts as a taxable event
This is where a lot of people trip up. A taxable event isn't just selling crypto for dollars. It includes trading one token for another, using crypto to buy goods or services, and receiving crypto as compensation. Transfers between your own wallets are not taxable, but you need clean records to prove they are your own wallets if the IRS ever asks.
The IRS has been expanding its data-gathering capabilities steadily. Exchanges operating in the US are already required to collect customer identity information, and broker reporting requirements for digital assets are being phased in. If your past returns didn't reflect your crypto activity accurately, the probability that the IRS will eventually have the data to identify that gap is rising.
Who the Voluntary Disclosure Program Is For
The IRS voluntary disclosure program is specifically designed for taxpayers whose failure to comply with tax laws was willful, meaning deliberate rather than accidental. That's an important distinction. The program exists to give people who knowingly under-reported or concealed income a path to resolving their liability without facing criminal prosecution, provided they come forward before the IRS has already opened an investigation into them.
Willful versus non-willful noncompliance
If your crypto tax mistakes were genuinely accidental, say you didn't know that swapping one token for another was a taxable event, the voluntary disclosure program isn't necessarily the right route. Non-willful errors are typically resolved through amended returns or penalty abatement requests. The voluntary disclosure program carries its own costs and procedures, so using it when it isn't required could be more burdensome than the situation demands. Getting advice from a qualified tax professional before you decide which path to take is strongly recommended.
That said, the line between willful and non-willful can be blurry, especially in crypto, where the reporting rules have been evolving and awareness has varied widely. The revised program's lower penalties and faster timeline may make it worth considering even in cases where the willfulness question isn't entirely clear-cut.
The Parallel Legislative Track: Section 502 of the DATCA
At the same time the IRS is working on its internal overhaul, lawmakers are moving a separate piece of legislation that would affect crypto taxpayers directly. Section 502 of the proposed Digital Asset Tax Certainty Act (DATCA) would establish a formal process specifically for correcting past crypto tax violations, including those that were unintentional.
That's a meaningful difference from the IRS's existing voluntary disclosure program, which is aimed at willful noncompliance. The DATCA provision would offer defined penalties, giving taxpayers more certainty about what they'd owe if they came forward. The bill cleared the House Ways and Means Committee in September, though it has not yet been signed into law. You can read more about how the Digital Asset Tax Certainty Act affects your crypto tax in our earlier coverage.
The two tracks could end up being complementary. The IRS overhaul handles willful noncompliance more efficiently; the DATCA provision, if enacted, handles unintentional errors with statutory clarity. Together, they'd represent the most significant expansion of crypto tax correction options since the IRS first started treating digital assets as property.
What This Means If You Have Unreported Crypto Gains
The combination of a faster IRS program and potential legislation specifically addressing crypto makes the next few months a critical window for anyone who knows their past returns weren't complete.
Steps worth taking now
First, reconstruct your transaction history. Every exchange you've used, every wallet you've held, every DeFi protocol you've interacted with: you need a record of what went in, what came out, and when. A crypto tax calculator or reporting tool can help you organise this data, but the underlying records need to come from your own exchange account histories and blockchain records. This is the foundation of any disclosure, voluntary or otherwise.
Second, quantify the gap. Once you know what your transaction history looks like, you can calculate the difference between what you reported and what you should have reported. That figure drives everything: which program applies, what the likely penalty exposure is, and how much you'd owe in tax if you came forward.
Third, get professional advice before you act. The voluntary disclosure process has procedural requirements, and making a mistake in how you enter the program can affect the protections it offers. A tax professional with crypto experience can help you determine whether your situation is more likely willful or non-willful, which program fits, and what the realistic cost of coming forward looks like compared to the risk of doing nothing.
For more background on how a voluntary disclosure program for crypto could work in practice, see our earlier piece on what the voluntary disclosure bill means for crypto investors.
The Bigger Picture for Crypto Tax Compliance in the US
The IRS overhaul, taken alongside the DATCA legislation and the ongoing rollout of broker reporting requirements, reflects a broader shift in how regulators are approaching crypto tax enforcement. The era of benign neglect, when the IRS had limited data and enforcement capacity, is clearly ending. What's replacing it is a more structured compliance environment, one where the rules are becoming more defined and the consequences for ignoring them are becoming more concrete.
For individual filers, that's actually not all bad news. More defined rules mean more certainty about what you owe. Faster voluntary disclosure timelines and lower penalties mean the cost of coming clean is lower than it was. And the possibility of an installment plan means you don't have to have the full tax bill in cash before you can resolve your situation.
The key is not to wait. Voluntary disclosure programs only work if you come forward before the IRS has already identified you as a target. Once an investigation is underway, the window closes. With the IRS expanding its data-gathering capabilities and the new broker reporting rules bringing more transaction data into the agency's hands, the risk of being identified before you act is growing every year.
Understanding how crypto is taxed in the US is the starting point. Getting your records in order and taking advice on your specific situation is the next step. The IRS is signalling it wants to make resolution easier; taking advantage of that signal is up to you.
Frequently Asked Questions
What is the IRS voluntary disclosure program?
It's a formal process that allows taxpayers who have willfully failed to comply with US tax laws to come forward and resolve their liability without facing criminal prosecution. The taxpayer must disclose before the IRS has opened a related investigation. The proposed overhaul aims to cut the resolution time to 120 days and reduce the penalties involved.
Does the IRS have a separate disclosure process for crypto?
No. According to IRS Criminal Investigation Chief Jarod Koopman, the planned overhaul will not create a standalone digital asset track. Crypto tax violations will be handled through the same voluntary disclosure procedures used for all other forms of noncompliance.
What's the difference between the IRS voluntary disclosure program and Section 502 of the DATCA?
The IRS program is designed for willful noncompliance, meaning deliberate under-reporting or concealment. Section 502 of the proposed Digital Asset Tax Certainty Act would create a separate statutory process for correcting crypto tax violations that were unintentional, with defined penalties. The two programs are complementary rather than duplicative.
How is crypto taxed in the US if I missed filing in a previous year?
Crypto is treated as property, so unreported gains from sales, swaps, or spending are subject to capital gains tax, and crypto received as income is subject to ordinary income tax. If you have unfiled or incorrect returns, the options for correction include amended returns for non-willful errors or voluntary disclosure for willful noncompliance. The right path depends on the specifics of your situation, and professional advice is recommended.
When will the revised IRS program launch?
Koopman indicated the IRS aims to introduce the revised program before December. No official launch date has been confirmed, and the details, including specific penalty rates and payment plan structures, have not yet been published.
Source: Cointelegraph