IRS plans 120-day Voluntary Disclosure Program for crypto cases

The Internal Revenue Service is preparing an overhaul of its Voluntary Disclosure Program (VDP) aimed at closing cases — including digital-asset cases — within 120 days of a complete submission. Chief of IRS Criminal Investigation Jarod Koopman outlined the plan at the UCLA Extension Tax Controversy Conference on Oct. 23, per Crypto Briefing. The release is expected before December 2026.

What is changing

Core items in the revised VDP:

• Resolution target of 120 days from a complete submission. Current cases routinely exceed a year, and in complex matters stretch to two.
• Lower penalties across the board. Koopman did not disclose the new rates; the current framework applies civil penalties on top of back taxes and interest, capped by the FBAR regime for foreign-account cases.
• Flexible payment paths. Installment plans and offers in compromise will be available inside the program for taxpayers who cannot pay in full.
• Digital-asset cases included in the general track. The IRS is not creating a separate crypto VDP; wallet-based disclosures run through the same pipeline as foreign-account or domestic cases.
• Front-loaded screening. Koopman has said in prior appearances the agency is moving away from full examinations in favour of an upfront screening step that gates which disclosures qualify.

The 120-day target was previewed in Koopman's Summer Tax Summit speech, and the broader rules revision has been in the pipeline since the December 2025 proposal on which the IRS invited comments.

Why crypto now

Three forcing functions put crypto inside the VDP timeline:

1. Form 1099-DA. From the 2025 tax year onward, custodial platforms must report digital-asset sales directly to the IRS on the new 1099-DA. The agency will have a matched record of transactions from US exchanges and brokers for the first time at material scale.
2. A looming matching cycle. Once 1099-DA data flows, the IRS will be able to compare it to filed returns and generate underreporting notices automatically — making unprompted disclosure a race against system matching.
3. The Digital Asset Tax Certainty Act. Section 502 of the bill, which the House Ways and Means Committee passed, would create a separate disclosure option with penalties as low as 0% on the first $25,000 of tax deficiency, subject to conditions. That is a legislative track, independent of the IRS program, and would layer on top rather than replace it.

The IRS's calculus: lower friction and faster closure now, before 1099-DA matching produces millions of discrepancy notices for the 2025 and 2026 tax years.

Numbers to watch

Context on the existing program (unchanged pending the revision):

- VDP preclearance: current step before full application
- Part II submission: 45 days after preclearance (extendable)
- Lookback: proposed Dec. 2025 rule covers 6 years for
  delinquent and amended returns
- Form 1099-DA: starts for the 2025 tax year
- Legislative alternative: Section 502, 0% penalty up to
  $25,000, House Ways and Means passed, Senate pending

What to watch

1. The published rules. Koopman expects the revised program within weeks. The 120-day target is the headline number; the published penalty table will tell taxpayers whether unprompted disclosure beats taking the 1099-DA matching notice.
2. Treatment of DeFi gaps. The 1099-DA regime captures custodial activity. Self-custody and most DeFi lending remain outside the broker-reporting net. Whether VDP intake asks for wallet-level receipts, or lets a taxpayer disclose only what the IRS can anyway see, materially changes the program's reach.
3. Interaction with CI referrals. The VDP sits inside IRS Criminal Investigation. If a case qualifies for the civil track once accepted, the agency's criminal-referral threshold is the real decision point. Koopman has not said whether the threshold moves.
4. Section 502 timing. If Congress passes the Digital Asset Tax Certainty Act before the IRS finalises the VDP revision, the two tracks will compete. Section 502's zero-penalty tier on small deficiencies will take the simple cases; the IRS program will keep the harder ones.

Context

The 2024 version of VDP was effectively a FATCA-era tool: designed for foreign-account non-filers under FBAR exposure. The revision is the first time the agency has publicly matched the program to the digital-asset reporting infrastructure. It is also one of the clearest signals that the IRS reads 1099-DA as the compliance regime it will enforce — not an experiment.

Sources:

• Crypto Briefing — IRS plans to reduce penalties and speed up crypto tax disclosures (primary, Oct. 24, 2026, from UCLA Extension Tax Controversy Conference).
• IFC Review — USA: IRS to launch revised voluntary disclosure programme (120-day target, Summer Tax Summit).
• Bloomberg Tax — IRS to Finalize Voluntary Disclosure Update in Next Few Months (earlier timeline).