IRS Prepares Major Overhaul of Voluntary Disclosure Program to Lower Penalties and Speed Up Resolutions

The United States Internal Revenue Service is currently preparing a comprehensive overhaul of its voluntary disclosure program, introducing strategic plans designed to reduce financial penalties and dramatically accelerate the resolution of tax violations. According to recent reports detailing upcoming agency adjustments, this sweeping reform will encompass various forms of financial noncompliance, including those involving complex digital assets and cryptocurrencies.

Speaking at industry events, IRS Criminal Investigation Chief Jarod Koopman revealed that the federal tax agency aims to officially introduce the revised and streamlined program before the month of December. A cornerstone of this upcoming initiative is a targeted timeline for case resolution, with the agency striving to fully resolve qualifying disclosures within a rapid 120-day window following the completion of the required taxpayer submission process. This ambitious target represents a radical departure from current administrative timeframes, which frequently stretch out for months or even years.

According to details emerging from tax controversy discussions, the forthcoming programmatic overhaul will not establish a separate, standalone disclosure track exclusively for digital assets. Instead, Koopman clarified during presentations at the UCLA Extension Tax Controversy Conference that the Internal Revenue Service intends to handle cryptocurrency and other digital asset noncompliance through the exact same overarching voluntary disclosure procedures utilized for traditional forms of tax noncompliance and unreported fiat income. This approach ensures a unified administrative framework while adapting to the unique reporting challenges posed by decentralized finance and digital currencies.

Furthermore, the high-ranking tax official indicated that the financial penalties enforced under the newly revised program will be substantially lower than those currently levied against noncompliant individuals under existing guidelines. While Koopman did not provide specific percentage figures or concrete penalty schedules during his remarks, the agency is reportedly exploring flexible financial accommodation. Specifically, the IRS is considering allowing qualifying taxpayers to settle their outstanding tax liabilities through structured installment plans or formal offers in compromise, providing a more accessible pathway for individuals seeking to rectify their tax standing without facing catastrophic financial ruin.

These proposed structural modifications would mark a profound and welcome shift away from the existing compliance process, which financial and legal professionals note can frequently take a year or longer to complete from start to finish. The Internal Revenue Service’s current voluntary disclosure program is specifically intended for taxpayers whose willful failure to comply with federal tax laws exposes them to the severe risk of criminal prosecution, rather than everyday individuals who may have made unintentional reporting errors or administrative mistakes on their annual filings.

While the IRS focuses on administrative restructuring for willful violators, lawmakers on Capitol Hill are simultaneously considering a separate legislative voluntary disclosure initiative aimed specifically at cryptocurrency taxpayers. This distinct legislative pathway is designed to assist crypto holders, including individuals who made honest mistakes or unintentional reporting errors regarding their digital asset transactions. Under Section 502 of the proposed Digital Asset Tax Certainty Act, lawmakers seek to establish a clear, dedicated process for correcting past reporting violations with precisely defined and predictable penalties. This stands in stark contrast to the existing IRS program, which primarily addresses intentional and willful tax noncompliance rather than innocent oversights in the fast-evolving digital asset sector. The legislative measure successfully cleared the House Ways and Means Committee in September, signaling growing bipartisan interest in creating regulatory clarity and fair remediation options for digital asset market participants across the United States.