IRS plans lower tax disclosure penalties, including for crypto: Forbes

The IRS voluntary disclosure program is a path for taxpayers to report past tax violations voluntarily. It matters because some failures to follow tax laws are serious enough to create potential criminal exposure. By disclosing, eligible taxpayers can seek a structured resolution with the tax agency instead of leaving the violation hidden.

For example, a taxpayer who willfully failed to report taxable income could use the program to submit the required information. The current process is built around serious, willful noncompliance, not ordinary mistakes. Under the planned overhaul, the IRS would also use this same process for digital-asset violations.

The existing program can take a year or longer to complete. IRS Criminal Investigation Chief Jarod Koopman said the agency wants revised cases resolved within 120 days after taxpayers finish the required submission process. The planned changes could also reduce penalties and offer more flexible ways to pay.

The planned overhaul would make the IRS voluntary disclosure program faster and less financially severe. The agency says penalties would be substantially lower than those currently imposed, although it has not published specific figures. This matters because taxpayers who disclose serious past violations could face a more manageable route to resolving their liabilities.

The proposed process targets decisions within 120 days after taxpayers complete the required submission process. It could also let taxpayers settle what they owe through installment plans or offers in compromise. These options would address not only the amount owed, but also how taxpayers pay it.

The proposal would change a process that Forbes reports can take a year or longer. IRS Criminal Investigation Chief Jarod Koopman said the revised program could arrive before December. The IRS would handle cryptocurrency cases through the same procedures, rather than creating a separate digital-asset disclosure program.

The proposed program could shorten case resolution to 120 days after a taxpayer completes the required submission process. The comparison is striking because the existing voluntary disclosure process can take a year or longer. A 120-day target is about four months, so cases could finish several months sooner under the planned approach.

For example, a taxpayer who submits all required information and completes the process could have a resolution targeted within 120 days. The clock described by IRS Criminal Investigation Chief Jarod Koopman begins after that submission process, not necessarily when a taxpayer first decides to disclose. The article does not provide a guaranteed completion date.

The timing remains a proposal, not an operating rule. Koopman said the IRS aims to introduce the revised program before December. The agency also plans lower penalties and flexible payment options, but it has not released specific penalty figures or confirmed that every case will meet the target.

The current IRS voluntary disclosure program is aimed at taxpayers whose willful failure to comply with tax laws could expose them to criminal prosecution. “Willful” distinguishes deliberate noncompliance from an accidental reporting mistake. That distinction matters because the program is intended for serious violations, not every incorrect tax filing.

For example, someone who intentionally failed to comply with tax laws may seek voluntary disclosure through the existing program. Someone who simply made an unintentional reporting error generally falls outside the program’s stated purpose. The article describes the current process as primarily addressing willful tax noncompliance.

The proposed IRS overhaul would not change digital assets into a separate category. Cryptocurrency cases would use the same general disclosure procedures. Separately, lawmakers are considering a crypto-focused program for taxpayers who made unintentional reporting errors, including a process with defined penalties. That proposal is distinct from the IRS’s current program.

If the proposed changes take effect, taxpayers who voluntarily disclose past violations could receive a less costly and more manageable resolution. The IRS has indicated that penalties would be substantially lower than those currently imposed. It is also considering payment arrangements that could make outstanding liabilities easier to settle.

For example, an eligible taxpayer might resolve a liability through an installment plan rather than paying the full amount immediately. Another possibility is an offer in compromise, which the IRS is considering as a way to settle outstanding liabilities. The article does not state the eligibility rules or final terms for either option.

These changes could encourage faster voluntary resolution, but they are not final. Jarod Koopman said the revised program is intended to be introduced before December, with cases targeted for resolution within 120 days after submission. Specific penalty amounts have not been announced, and the existing program remains focused on willful violations.

The IRS plans to handle cryptocurrency violations through its ordinary voluntary disclosure procedures. It would not create a separate disclosure process for digital assets under the proposed overhaul. This approach places digital-asset noncompliance inside the same framework used for other forms of tax noncompliance.

For example, a taxpayer disclosing a past cryptocurrency-related violation would follow the general submission process rather than a crypto-only pathway. The same planned features would therefore be relevant, including lower penalties, a possible 120-day resolution target, and potential installment plans or offers in compromise. The article gives no separate crypto penalty schedule.

The proposal differs from a separate measure being considered by lawmakers. Section 502 of the proposed Digital Asset Tax Certainty Act would create a crypto taxpayer process for correcting past violations, including unintentional reporting errors. That bill cleared the House Ways and Means Committee in September, while the IRS program primarily addresses willful noncompliance.

The distinction is intent. An unintentional reporting mistake happens when a taxpayer fails to report information accurately without deliberately trying to violate tax laws. Intentional tax evasion involves a willful failure to comply. The article uses that difference to separate ordinary errors from violations serious enough to risk criminal prosecution.

For example, a taxpayer who accidentally reports a figure incorrectly would fit the article’s description of an unintentional error. A taxpayer who deliberately fails to comply with tax laws would fall within the current voluntary disclosure program’s target group. The program is designed for people whose willful conduct could expose them to criminal prosecution.

This distinction also explains the competing proposals. The IRS’s current program primarily addresses willful noncompliance, while lawmakers are considering a crypto program for unintentional reporting errors. The article does not provide a detailed legal test for intent, so the exact classification of any taxpayer’s conduct would depend on facts not described here.