The IRS Is Updating Its Voluntary Disclosure Program for Cryptocurrency: What Crypto Investors Need to Know

Over the past several years, cryptocurrency has evolved from a niche investment into a mainstream asset class. Millions of taxpayers now own Bitcoin, Ethereum, stablecoins, and countless other digital assets. Along the way, however, tax reporting has become increasingly complicated. Many investors entered the crypto market without fully understanding that digital asset transactions often create taxable events, and some taxpayers intentionally chose not to report certain transactions at all.

Now the IRS is signaling that digital asset compliance remains one of its enforcement priorities.

The IRS is finalizing updates to its Voluntary Disclosure Program (VDP) with digital asset noncompliance specifically in mind. While the revised procedures have not yet been finalized, they are expected to make the program more streamlined while reflecting the growing importance of cryptocurrency enforcement.

For taxpayers who have concerns about prior crypto reporting, this development should not be ignored. More importantly, it should not cause unnecessary panic. Depending on the facts, there may still be opportunities to voluntarily correct past reporting issues before the IRS initiates contact.

Cryptocurrency Is Becoming Much More Visible to the IRS

For years, many cryptocurrency transactions occurred with relatively limited third-party reporting. That environment is changing rapidly.

Congress and the IRS have steadily expanded reporting requirements for digital assets, and broker reporting on Form 1099-DA represents another significant step toward greater transparency. As more information is reported directly to the IRS, matching taxpayer returns against reported cryptocurrency transactions becomes easier.

This does not mean that every cryptocurrency owner will face an audit. Nor does it mean that everyone who made a reporting mistake has a serious tax problem.

It does mean that taxpayers who know they have significant reporting issues should recognize that the IRS is obtaining more information than ever before.

Waiting in the hope that the IRS never notices may become an increasingly risky strategy.

What Is the IRS Voluntary Disclosure Program?

The IRS Voluntary Disclosure Program is designed for taxpayers who want to voluntarily disclose past tax noncompliance before the IRS identifies the issue.

In simple terms, the program gives taxpayers an opportunity to come forward, report previously undisclosed tax issues, pay the tax, interest, and applicable penalties, and potentially avoid a recommendation for criminal prosecution.

One point is especially important.

The program does not provide automatic immunity from criminal prosecution. The IRS makes that clear in its guidance. Acceptance into the program does not guarantee that criminal charges will never be pursued.

However, for many years, voluntary disclosure has been an important path for taxpayers facing significant compliance concerns because it demonstrates cooperation before the government uncovers the issue independently.

The existence of the program reflects a practical reality. The IRS generally benefits when taxpayers voluntarily correct problems rather than forcing the government to discover every instance of noncompliance through examinations or criminal investigations.

The Program Is Not for Every Taxpayer

One of the biggest misconceptions about the Voluntary Disclosure Program is that anyone who made a mistake on a tax return should use it.

That is not how the program works.

The VDP is generally intended for taxpayers whose prior noncompliance may have been willful. In tax law, "willful" generally means more than making an honest mistake. It typically involves intentionally failing to comply with known tax obligations.

By contrast, many cryptocurrency reporting problems involve situations such as:

• Confusion about complex reporting rules.
  
  
• Incomplete transaction records.
  
  
• Misunderstanding whether a transaction was taxable.
  
  
• Errors in calculating gain or loss.
  
  
• Reliance on inaccurate software or incomplete exchange information.

Those situations may require correction, but they do not automatically mean a taxpayer belongs in the Voluntary Disclosure Program.

Choosing the wrong correction method can create unnecessary costs and complications. That is why talking to our office is so important before taking any action.

What Changes Is the IRS Proposing?

The IRS first proposed updates to the Voluntary Disclosure Program in late 2025. Those proposals are now moving toward final implementation.

Although the final procedures have not yet been released, the proposed changes include several important updates.

Among them are:

• A six-year disclosure period.
  
  
• A standardized 20% accuracy-related penalty for amended returns.
  
  
• Failure-to-file penalties for delinquent returns.
  
  
• Electronic submission of Form 14457.
  
  
• A three-month deadline after conditional acceptance to submit required returns and pay tax, penalties, and interest.

The overall goal appears to be making the process more standardized and easier to administer while providing taxpayers with clearer expectations regarding penalties and timing.

Until the IRS issues final guidance, however, taxpayers should understand that these procedures remain subject to change.

Why Timing Matters

One of the most important features of any voluntary disclosure program is reflected in its name.

The disclosure must actually be voluntary.

Once the IRS has already begun an examination, received information identifying the taxpayer's noncompliance, or otherwise initiated contact regarding the issue, certain disclosure opportunities may no longer be available.

That is why taxpayers who know they have significant reporting concerns should avoid waiting until they receive an IRS notice before seeking professional advice.

Reviewing the situation now provides more flexibility than trying to respond after the IRS has already opened an examination.

Not Every Crypto Reporting Error Is Criminal

Another misconception worth addressing is the belief that every cryptocurrency reporting problem carries criminal consequences.

Fortunately, that is not true.

Tax law distinguishes between innocent mistakes, negligence, substantial understatements, civil fraud, and criminal tax violations. These are very different situations with very different legal standards.

Many taxpayers simply misunderstood how cryptocurrency should be reported. Others relied on incomplete transaction histories or inaccurate cost-basis information. Still others were unaware that exchanging one cryptocurrency for another could trigger taxable gain.

Those situations may still require amended returns or additional tax payments, but they are very different from intentionally concealing taxable income.

Because every case depends on its specific facts, taxpayers should resist assuming either that they have nothing to worry about or that they automatically face criminal exposure.

Both assumptions can be wrong.

Increased Reporting Means Increased Questions

As digital asset reporting expands, we expect many taxpayers to begin asking questions such as:

• Should I amend prior-year returns?
  
  
• What if I failed to report cryptocurrency several years ago?
  
  
• What if I no longer have complete transaction records?
  
  
• What if my exchange no longer exists?
  
  
• Does every mistake require a voluntary disclosure?
  
  
• Should I wait until the IRS contacts me?

The answer to almost every one of these questions is the same:

It depends.

Tax reporting decisions should be based on the taxpayer's complete facts, including the nature of the transactions, the years involved, the amount of tax at issue, available documentation, and whether the reporting failures were intentional or inadvertent.

There is rarely a one-size-fits-all solution.

Don't Rush Into Filing Amended Returns

When taxpayers discover a reporting problem, the natural reaction is often to immediately file amended returns.

Sometimes that is the correct approach.

Sometimes it is not.

If a taxpayer may have potential criminal exposure, filing amended returns without first evaluating the available correction options may not produce the best outcome.

Likewise, entering the Voluntary Disclosure Program when a taxpayer merely made an honest reporting mistake may expose that taxpayer to procedures that were never intended for their situation.

The appropriate path depends on understanding the facts before taking action.

That evaluation should occur first.

The paperwork comes second.

Why Contacting Our Office Matters More Than Ever

Cryptocurrency taxation has become one of the most technically challenging areas of individual income tax reporting.

A single taxpayer may have transactions involving:

• Multiple exchanges.
  
  
• Self-custodied wallets.
  
  
• Staking rewards.
  
  
• Airdrops.
  
  
• Hard forks.
  
  
• NFTs.
  
  
• Decentralized finance platforms.
  
  
• International exchanges.
  
  
• Thousands of individual transactions.

Each raises its own reporting questions.

When past reporting problems are added to that complexity, determining the correct resolution often requires much more than preparing an amended tax return.

It requires evaluating the legal risks, available correction procedures, documentation, and long-term consequences of each available option.

The IRS Is Continuing to Focus on Digital Assets

The proposed changes to the Voluntary Disclosure Program should be viewed as part of a broader trend rather than an isolated announcement.

Over the past several years, the IRS has consistently increased its attention to digital assets through:

• Expanded reporting requirements.
  
  
• New information return requirements.
  
  
• Updated tax forms.
  
  
• Additional compliance guidance.
  
  
• Increased examination activity.
  
  
• Greater public education regarding digital asset reporting.

The modernization of the Voluntary Disclosure Program fits squarely within that larger compliance effort.

For taxpayers who have properly reported their cryptocurrency transactions, these developments simply reinforce the importance of maintaining accurate records.

For taxpayers with unresolved reporting issues, they serve as a reminder that available options should be evaluated before circumstances become more complicated.

The Bottom Line

The IRS's planned revisions to its Voluntary Disclosure Program demonstrate that digital asset compliance remains a priority. While the final procedures have not yet been released, the proposed changes are intended to simplify the disclosure process while establishing more standardized rules for taxpayers seeking to correct past noncompliance.

The key takeaway is not that every cryptocurrency reporting mistake requires a voluntary disclosure. In fact, many do not. Honest errors and inadvertent omissions are often addressed differently than situations involving willful noncompliance.

The important step is determining which path fits your particular circumstances before taking action.

If you own cryptocurrency and are concerned about prior-year reporting, now is an excellent time to review your situation. Waiting until the IRS contacts you may limit your options, while an early review allows you to understand the available correction methods and choose the approach that best fits your facts.

If you have unreported cryptocurrency transactions, contact us. We can review your tax filings, discuss your reporting history, explain the available correction options, and help you determine the most appropriate course of action before you make any decisions.

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