IRS aims to cut crypto tax disclosure cases from a year-plus to 120 days, with lower penalties

The IRS plans to revamp its voluntary disclosure program for taxpayers with unreported income, including crypto gains, aiming to resolve cases within 120 days of a complete submission instead of a year or more, IRS Criminal Investigation Chief Jarod Koopman said. The changes would also lower penalties, but final rules have not been published, and the program targets willful noncompliance, not honest mistakes.

IRS targets faster resolutions and lower penalties

The proposed overhaul would make voluntary disclosure more accessible by reducing penalties and offering greater flexibility for taxpayers who cannot immediately settle their outstanding obligations.

Under the planned framework, eligible participants could benefit from installment agreements and offers in compromise, which may allow qualifying taxpayers to pay over time or settle certain liabilities for less than the full amount owed.

These options could be particularly important for digital asset investors whose holdings have declined in value since they originally incurred taxable gains. A taxpayer might have generated substantial proceeds during a market rally but lack sufficient cash to cover an outstanding tax bill today.

A shorter resolution period could also reduce uncertainty, professional fees and the administrative burden associated with prolonged cases.

However, the 120-day target should not be interpreted as a guarantee that every disclosure will be completed within four months. Complex cases, incomplete submissions and additional information requests could affect the process.

The IRS has not yet published the final program rules, so taxpayers should wait for official guidance before assuming that particular penalty reductions or payment arrangements will apply to their circumstances.

Crypto investors face greater reporting visibility

The proposed changes arrive as the IRS expands its ability to collect information about digital asset transactions.

Form 1099-DA introduces reporting requirements for brokers handling digital asset sales and dispositions. For transactions conducted from January 1, 2025, covered brokers generally must report gross proceeds, with applicable basis-reporting requirements expanding for certain assets acquired from 2026 onward.

These requirements increase the information available to the agency when reviewing taxpayers’ returns. However, reporting obligations vary by transaction and broker, and the absence of a Form 1099-DA does not eliminate a taxpayer’s responsibility to report taxable activity.

The implications extend beyond straightforward cryptocurrency sales. Depending on the circumstances, taxable events can arise from trading one digital asset for another, selling tokens for cash or receiving certain rewards through staking and mining.

For investors who previously omitted reportable transactions, the evolving Crypto tax reporting system makes accurate recordkeeping increasingly important. Transaction histories, acquisition costs, disposal proceeds and records of income received can all help establish the correct tax position.

The revised disclosure program could therefore offer a potential compliance route just as digital asset activity becomes more visible to federal authorities.

Congress considers a separate digital asset disclosure option

Alongside the IRS initiative, lawmakers are considering legislation that could establish a dedicated disclosure framework for certain digital asset tax violations.

Section 502 of the Digital Asset Tax Certainty Act proposes a separate voluntary disclosure option for eligible taxpayers. The legislation advanced through the House Ways and Means Committee in September 2026, but committee approval does not make the proposal law.

Under the committee-approved legislative text, qualifying participants could potentially receive penalties as low as zero percent on the first $25,000 of tax deficiency, subject to the proposal’s eligibility requirements and other conditions.

That provision could offer a different route from the IRS’s broader voluntary disclosure framework. Nevertheless, the proposed relief should not be treated as an existing entitlement: its availability depends on the legislation’s further progress and the terms ultimately enacted.

The distinction matters because taxpayers considering a disclosure today cannot automatically rely on benefits contained in a bill that has not become law.

For now, the IRS’s planned overhaul and Congress’s legislative proposal represent separate developments. Their eventual interaction will depend on the final administrative rules and the outcome of the legislative process.

What taxpayers should do before the new rules arrive

For cryptocurrency holders with potential reporting exposure, the immediate priority is to understand their existing obligations rather than assume that future relief will erase past liabilities.

Taxpayers should review historical transactions, reconcile exchange statements and wallet records, calculate relevant gains or losses, and identify income that may have been omitted from earlier returns. Where potential criminal exposure exists, consulting a qualified tax attorney before making a disclosure can be particularly important.

Voluntary disclosure procedures are not necessarily designed for every reporting mistake. The IRS’s criminal voluntary disclosure framework is generally aimed at taxpayers seeking to address potential criminal exposure arising from willful noncompliance. An accidental error may require a different correction process.

That distinction should guide decisions about whether and how to approach the agency.

The developing Crypto tax framework also highlights why investors should not confuse improved disclosure opportunities with an exemption from reporting obligations. A lower penalty, if available, would not automatically eliminate the underlying tax owed.

If introduced as planned, the revised program could make it easier for eligible taxpayers to resolve historical violations without enduring years of uncertainty. But the final eligibility criteria, penalty calculations and processing procedures remain critical unanswered questions.

With Form 1099-DA reporting expanding and lawmakers weighing additional relief, the coming months could reshape how the United States handles previously undisclosed digital asset activity. Until the IRS releases its final guidance and Congress settles the status of the proposed legislation, taxpayers should treat the announced changes as prospective rather than guaranteed relief.