The IRS Is About to Make Confessing Cheaper: 120 Days, Lower Penalties, and No Separate Crypto Track

120 days after a complete submission. Substantially lower penalties. Those are the targets IRS Criminal Investigation chief Jarod Koopman set for the revamped Voluntary Disclosure Practice on October 23, 2026. The overhaul is “very close,” he said, with release planned before December begins. The final terms are not published.

For a US crypto holder ignoring a six-figure cost-basis problem, the potential change is concrete: a different price and timetable for admitting intentional tax noncompliance under a framework dating to 2018. Unreported gains, sales on foreign exchanges and mixer transactions still require records and explanations. Form 1099-DA reporting now gives the IRS custodial-broker data on US users; a missing basis history remains the holder’s problem to reconstruct.

What Koopman actually said on October 23

Forbes reported Koopman’s remarks at the UCLA Extension Tax Controversy Conference, where practitioners applauded the announcement. His internal target is to resolve cases within a maximum of 120 days once the taxpayer completes the required submission. That is not a promise to finish a case within 120 days of the first inquiry or preclearance request.

Koopman said penalties would be “substantially lower” but supplied no figures. He also signaled flexibility on payment, with installment plans and offers in compromise under consideration, and said the revised VDP would not replace other compliance mechanisms. Cointelegraph’s coverage highlighted another important boundary: digital assets will use the same VDP as other tax noncompliance.

The unanswered questions are material:

• No final penalty schedule has been published.
• No precise release date was given beyond before December; an operative start date remains unconfirmed.
• The proposed 20% rate is not confirmed as the final rate.
• No crypto-only carve-out was announced.
• Koopman did not settle appeal rights.
• Payment flexibility remains a stated direction, not written program terms.

Analysis: The announcement supports preparing a complete file. It does not support calculating a settlement using an assumed final rate or treating the 120-day target as an enforceable deadline.

What coming clean costs today

Per IRM 4.63.3.18, the current framework applies one 75% civil fraud penalty under IRC 6663, or fraudulent failure-to-file penalty under IRC 6651(f), to the year with the highest tax deficiency. It replaces IRC 6662 accuracy-related penalties and IRC 6651(a)(1) and (a)(2) delinquency penalties for the other years. Estate tax disclosures have a separate 50% treatment.

The disclosure period generally covers the most recent six tax years, measured from the date IRS CI receives Part II of Form 14457. The measurement date matters: assembling records and requesting preclearance are not the same event as submitting Part II.

The current baseline requires full payment of tax, penalties and interest. A taxpayer unable to pay must disclose that up front, propose a payment arrangement and submit Form 433-A. That is different from simply assuming an installment plan will be available after acceptance.

Participants must sign a statement acknowledging willful noncompliance. There are no appeal rights within the practice: disputing the examiner’s determination can lead to removal from the program. The IRS’s VDP overview frames this route around willful failures, not ordinary reporting mistakes.

Analysis: The headline percentage is only one part of the decision. A holder must also evaluate six years of records, the admission being signed, payment capacity and the consequences of a disagreement with the examiner.

The December 20% framework is not automatically cheap

The IRS’s December 22, 2025 proposal opened a 90-day comment period that closed March 22, 2026. It retained six years of disclosure but proposed changing how penalties accumulate:

• Delinquent returns: Failure-to-file penalties for each year, without failure-to-pay penalties.
• Amended returns: A 20% accuracy-related penalty for each year.
• Delinquent or amended FBARs: Per-year penalties subject to inflation adjustment.
• Delinquent or amended international information returns: Up to $10,000 per return per year.

Under that proposal, conditional approval would start a three-month deadline to submit amended or delinquent returns, applicable international information returns and FBARs, pay in full, and execute the required agreements. Those include a signed closing agreement waiving statutes of limitations, agreement to accuracy-related penalties and an FBAR agreement where applicable. Conditional approval could be rescinded.

The Taxpayer Advocate Service’s February critique identified the arithmetic problem: cumulative 20% penalties over six years could approach or exceed the old single 75% penalty in some circumstances. The comparison depends on how the tax deficiencies are distributed across years, not just which percentage is smaller.

Analysis: If the largest deficiency is concentrated in one year, a lower annual rate may substantially change the bill. If deficiencies recur across the disclosure period, applying a penalty every year can consume that apparent saving. Compare the full period, then account for the separately proposed reporting penalties.

TAS also reported only 161 completed VDP cases between September 28, 2018 and August 31, 2024. Its critique flagged proposed FAQ 13’s exclusion of taxpayers unable to pay in full and the absence of new appeal rights. Koopman’s payment comments suggest possible movement on the first issue; they do not resolve the second.

Keep three clocks separate: the proposed three-month taxpayer compliance window, Koopman’s 120-day IRS processing target, and the proposal’s expected effective date six months after publication of final terms. None can be substituted for another.

No separate crypto track means the same disclosure burden

Koopman’s remarks rule out the expectation of a dedicated digital-asset process. A holder with intentionally omitted crypto gains would enter the same VDP as someone with other willful tax noncompliance.

That creates a common route, but it does not simplify the transaction history. The virtual-currency section introduced in the 2022 revision of Form 14457 requires coins to be listed separately with acquisition and disposal dates. It also calls for identifying mixers or tumblers used and explaining why they were used.

Analysis: A lower penalty would change the cost of disclosure, not make incomplete wallet records sufficient. A holder who used foreign exchanges or mixers should prepare a coherent transaction history before treating a faster processing target as a personal timetable. The same process also means there is no announced crypto-specific penalty concession to put into the calculation.

Willful versus non-willful decides which door to use

The first question is what happened, not which proposed rate looks cheapest. VDP addresses intentional noncompliance. Missing records or an incorrect return do not, by themselves, settle whether conduct was willful.

Have tax counsel assess that distinction before signing an admission. For non-willful errors, amended or delinquent returns and other applicable compliance mechanisms need consideration. Koopman expressly said the revised VDP would not displace those mechanisms. That does not make a bare late return a substitute for evaluating potential willful conduct.

There is also a separate legislative proposal. Section 502 of the Digital Asset Tax Certainty Act, H.R. 10357, would establish a disclosure route aimed at non-willful crypto reporting errors. The bill cleared the House Ways and Means Committee in September 2026. It is not law.

The distinction is fundamental: an IRS revision to a practice for willful conduct and a pending congressional route for non-willful errors are different projects. Neither announcement makes the proposed legislative route available now.

A practical checklist before the program lands

Preparation can proceed before the final penalty table exists:

• Retain exchange records now. Export transaction histories from US and foreign venues. Preserve wallet addresses, transaction identifiers, acquisition records and disposal records. Keep the original exports alongside any reconstructed ledger.
• Reconstruct basis before pricing the disclosure. Reconcile transfers and trades against the records. Identify unresolved entries explicitly rather than treating missing acquisition information as a completed calculation.
• Review voluntariness before filing. If intentional noncompliance may be involved, have counsel assess the sequence before submitting a late or amended return. Do not assume a standalone filing preserves VDP eligibility or completes a voluntary disclosure. This is a reason to resolve the filing route promptly, not to ignore existing obligations while waiting for reform.
• Plan preclearance timing. Under the current two-step process, Part I of Form 14457 goes to IRS CI for preclearance by fax at 844-253-5613. Discuss whether to proceed under current rules; the promised release does not establish transition treatment for pending applicants.
• Respect the Part II clock. After preclearance, Part II is due within 45 days and is signed under penalty of perjury. Prepare the narrative and supporting records before that deadline becomes a scramble. CI’s receipt of Part II also determines the general six-year disclosure period.
• Document payment capacity. Assemble the information needed for Form 433-A and a proposed payment arrangement if full payment is impossible. Do not build a filing strategy around an offer in compromise that the revised program has not yet authorized in writing.

Watch the final terms, not just the release announcement

The next decisive document is the published final VDP framework. Check the penalty table, treatment of pending submissions, operative effective date, appeal provisions and whether payment flexibility survives into the text.

The December proposal anticipated effectiveness six months after publication of final terms. Koopman’s before-December release target does not establish that revised treatment starts before December, nor confirm that the six-month interval will survive unchanged.

The promised direction is lower penalties and faster resolution. The usable answer will be the final written terms. Until then, reconstruct the records, assess willfulness and plan the submission sequence around the rules actually in force.