Proposed Bill Offers Crypto Investors a Path to Rectify Past Tax Errors
A proposed piece of legislation in the U.S. Congress could provide a much-needed reprieve for cryptocurrency investors who have made past tax reporting mistakes. The Digital Asset Voluntary Disclosure Program, outlined in Section 502 of the Digital Asset Tax Certainty Act (H.R. 10357), aims to allow eligible taxpayers to amend past reporting with reduced penalties.
The bill, which has advanced through the House Ways and Means Committee with a 38-5 vote, would mandate the Treasury secretary to establish the disclosure program within 12 months of its enactment. This program would enable taxpayers to correct any past digital asset tax violations by filing amended returns and settling the outstanding tax, plus interest and a program-specific penalty.
Andrew Gordon, executive director of Digital Asset Tax Action, highlighted the significance of the proposed legislation, noting that it represents a “big change that would help a lot of ordinary taxpayers, and it has gotten very little attention.”
Addressing Past Reporting Lapses
The initiative comes as U.S. crypto investors navigate the complexities of new 1099-DA broker reporting rules, which enhance the IRS’s oversight of crypto transactions. While these new rules are expected to simplify reporting going forward, they do not address the reporting landscape of previous years.
“A large share of investors didn’t report correctly over the years,” Gordon stated, adding that current procedures lack a predictable mechanism for taxpayers who made “honest mistakes” to resolve their tax liabilities. He explained that investors may discover years later that they misunderstood the tax treatment of crypto-to-crypto trades or had reporting activity across multiple platforms, leaving them with no clear recourse.
Unlike the IRS’s existing Voluntary Disclosure Practice, which is designed for individuals facing potential criminal charges for willful tax violations, the proposed Section 502 program is tailored for those with unintentional reporting errors. While taxpayers can currently file amended returns, the penalty structure is less predictable than what the new crypto-specific program would offer.
Predictable Penalties and Clear Resolution
Sharon Yip, a certified public accountant and founder of Crypto Tax Advisors, confirmed that reporting errors are common among ordinary crypto investors. Her firm has encountered clients who failed to report crypto assets believing taxes were only due upon cashing out, or who relied on incomplete exchange records and misclassified transactions.
“There is no standardized process that gives non-willful crypto investors predictable penalty treatment or a clear resolution,” Yip told Magazine. She believes a dedicated crypto program could “fill this gap” by offering a “defined correction period, reduced and predictable penalties and greater certainty for taxpayers who come forward voluntarily.”
Penalty Structures Under the Proposed Program
Under Section 502, taxpayers would generally be required to file amended returns within 24 months of the program’s establishment. The bill outlines two penalty tracks.
For taxpayers who certify under penalty of perjury that their violations were neither fraudulent nor willful, lower penalty rates would apply. These individuals could face a 0% penalty on the first $25,000 of tax deficiency annually, and 5% on amounts exceeding that threshold, provided they file within the first 12 months of the program.
For those who do not provide such a certification, penalty rates of 25% on the first $25,000 and 40% on amounts above that would be applicable, with rates increasing for those who miss the initial filing window.
The program also offers relief from specified civil penalties. Taxpayers who do not certify are protected from criminal referrals based on properly disclosed information pertaining to the tax offenses covered by the provision.
Yip advises taxpayers to meticulously review their transaction histories across exchanges and wallets to identify which years require correction before determining if their mistakes were genuinely non-willful. Given that false certification carries penalties for perjury, she recommends seeking professional guidance if there is any uncertainty.
The proposed Section 502 could prove to be a significant relief for many U.S. crypto users, particularly in light of a 2026 report by CoinTracker and Coinbase, which found that only 49% of crypto users correctly understood that selling cryptocurrency can be a taxable event.
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