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How the IRS’s Updated Voluntary Disclosure Program Impacts Your Crypto Taxes
Over the past several years, cryptocurrency has evolved from a niche interest into a mainstream asset class. Whether you manage real estate investments in Rancho Cucamonga, run a medical practice in Upland, or operate a trucking fleet in Ontario, there is a strong chance you or your business now own Bitcoin, Ethereum, stablecoins, or other digital assets. Along the way, tax reporting has become incredibly complicated. Many investors entered the crypto market without realizing that digital asset transactions often create taxable events, while some intentionally chose not to report specific transactions at all.
Now, the IRS is sending a clear signal that digital asset compliance remains one of its top 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 streamline the program while reflecting the growing weight of cryptocurrency enforcement.
For those who have concerns about prior crypto reporting, this development should not be ignored. Just as importantly, it should not cause unnecessary panic. Depending on your facts, there may still be opportunities to voluntarily correct past reporting issues before the IRS reaches out to you.
Cryptocurrency Is Highly Visible to the IRS Today
For years, many cryptocurrency transactions happened with relatively limited third-party reporting. That landscape is changing rapidly.
Congress and the IRS have steadily expanded reporting requirements for digital assets, and broker reporting on Form 1099-DA represents another massive step toward greater transparency. As more information is reported directly to the IRS, matching your tax returns against reported cryptocurrency transactions becomes much easier.
This does not mean that every cryptocurrency owner is going to 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 need to recognize that the IRS is gathering more information than ever before.
Waiting in the hope that the IRS never notices is becoming an increasingly risky strategy.
Understanding the IRS Voluntary Disclosure Program
The IRS Voluntary Disclosure Program is designed for taxpayers who want to proactively disclose past tax noncompliance before the IRS identifies the issue on its own.
In simple terms, the program gives you 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 here is incredibly important.
The program does not provide automatic immunity from criminal prosecution. The IRS makes that crystal clear in its guidance. Acceptance into the program never guarantees that criminal charges will not be pursued.
However, for many years, voluntary disclosure has been a critical path for taxpayers facing major 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 fix problems rather than forcing the government to discover every instance of noncompliance through examinations or criminal investigations.
The VDP Isn't for Every Crypto 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 simply not how the program functions.
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 stem from 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 you belong in the Voluntary Disclosure Program.
Choosing the wrong correction method can create unnecessary costs and procedural headaches. That is why talking to our office is so important before you take any action.
Proposed Changes to the VDP
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 significant 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 giving taxpayers clearer expectations regarding penalties and timing.
Until the IRS issues its final guidance, however, you should understand that these procedures remain subject to change.
Why the Timing of Your Disclosure Matters
One of the most essential features of any voluntary disclosure program is right there in its name.
The disclosure must actually be voluntary.
Once the IRS has already started an examination, received information identifying your noncompliance, or otherwise initiated contact regarding the issue, certain disclosure opportunities may no longer be available to you.
That is exactly why those who know they have significant reporting concerns should avoid waiting until they receive an IRS notice before seeking professional advice.
Reviewing the situation right now provides far more flexibility than trying to mount a response after the IRS has already opened an examination.
Crypto Reporting Mistakes Aren't Automatically Criminal
Another misconception worth clearing up is the belief that every cryptocurrency reporting problem carries criminal consequences.
Fortunately, that is not true.
Tax law actively distinguishes between innocent mistakes, negligence, substantial understatements, civil fraud, and criminal tax violations. These are entirely different situations judged by entirely different legal standards.
Many taxpayers simply misunderstood how cryptocurrency was supposed to be reported. Others relied on incomplete transaction histories or inaccurate cost-basis information. Still others had no idea that exchanging one cryptocurrency for another could trigger a taxable gain.
Those situations may still require amended returns or additional tax payments, but they are vastly different from intentionally concealing taxable income.
Because every case depends on its specific facts, you should resist assuming either that you have nothing to worry about or that you automatically face criminal exposure.
Both assumptions can be entirely wrong.
More Reporting Requirements Lead to More Questions
As digital asset reporting expands, we expect many local business owners to start asking questions like:
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 your complete facts, including the nature of the transactions, the specific 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.
Pause Before Filing Amended Returns
When you discover a reporting problem, the natural reaction is often to immediately file an amended return to make it right.
Sometimes that is the correct approach.
Sometimes it is not.
If you have potential criminal exposure, filing amended returns without first evaluating the available correction options might not yield the best outcome.
Likewise, entering the Voluntary Disclosure Program when you merely made an honest reporting mistake may expose you to procedures that were never meant for your situation.
The appropriate path depends entirely on understanding the facts before taking action.
That evaluation should happen first.
The paperwork comes second.
Why Local Guidance Matters for Your Crypto Taxes
Cryptocurrency taxation has become one of the most technically challenging areas of individual income tax reporting.
A single taxpayer might have a web of transactions involving:
Multiple exchanges.
Self-custodied wallets.
Staking rewards.
Airdrops.
Hard forks.
NFTs.
Decentralized finance platforms.
International exchanges.
Thousands of individual transactions.
Every single one raises its own specific reporting questions.
When past reporting problems are layered on top of that complexity, determining the correct resolution generally requires much more than simply preparing an amended tax return.
It requires evaluating the legal risks, available correction procedures, documentation, and the long-term consequences of each available option.
The IRS Continues to Prioritize Digital Assets
The proposed changes to the Voluntary Disclosure Program should be viewed as part of a much broader trend rather than an isolated announcement.
Over the past several years, the IRS has consistently ramped up 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 into that larger compliance effort.
For those who have properly reported their cryptocurrency transactions, these developments just reinforce the importance of keeping accurate records.
For those with unresolved reporting issues, they serve as a clear reminder that available options should be evaluated before circumstances get more complicated.
Finding the Right Correction Strategy for Your Crypto Taxes
The IRS's planned revisions to its Voluntary Disclosure Program prove that digital asset compliance is still a major priority. While the final procedures have not yet been released, the proposed changes are intended to simplify the disclosure process while setting more standardized rules for correcting past noncompliance.
The most important takeaway is not that every cryptocurrency reporting mistake requires a voluntary disclosure. In fact, many do not. Honest errors and inadvertent omissions are often handled differently than situations involving willful noncompliance. The vital step is determining which path fits your specific circumstances before doing anything.
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 pick the approach that aligns with your facts. If you have unreported cryptocurrency transactions, reach out to our office. We can review your tax filings, walk through your reporting history, explain your correction options, and help you get back on track securely in Rancho Cucamonga, Upland, and Ontario.
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