Voluntary Disclosure for Crypto: What to Do with Unreported Gains

The Israel Tax Authority's voluntary disclosure procedure ended on 31.8.2026, and 203 of the applications filed under it involved digital assets, with declared capital of approximately NIS 482.5 million. Those who did not file by that date can still regularize unreported crypto gains: transactions are reconstructed, the tax is calculated for each year, and amended returns are filed or an assessment agreement is reached. Such regularization does not carry the procedure's commitment to refrain from criminal proceedings, so the exposure must be assessed first.

According to Income Tax Circular 05/2018, a virtual currency is an asset. Selling it, as well as exchanging it for another virtual currency, constitutes a tax event. As a rule, the gain is classified as a capital gain, on which an individual pays 25% of the real gain, with a surtax added on high incomes under Section 121B of the Ordinance. When the activity rises to the level of a business — for example, mining or trading at a business-level volume and frequency — the income is classified as business income and taxed at the marginal rates.

Anyone who bought and held without selling or exchanging has not yet disposed of an asset. The difficulty begins for those who exchanged between currencies over the years without reporting, because each exchange is a separate event that must be calculated. Details on tax rates and ongoing reporting obligations can be found on the Tax on Crypto and Bitcoin.

Reconstruction starts with documentation. You gather transaction files from every exchange you used, wallet addresses and records of transfers between them, and calculate in shekels the gain or loss on each tax event, year by year.

Losses can be offset, subject to two limitations. A carried-forward capital loss may only be offset against capital gains in subsequent years, not retroactively (Section 92 of the Ordinance). Furthermore, under Income Tax Circular 10/2025, offsetting a carried-forward loss is permitted only if a return was filed for the year in which the loss arose and for the offset year, and the loss was reported in both. Anyone who incurred losses in 2022 and profited afterward must therefore also report the loss year, even belatedly.

The result is a calculation for each year. Based on it, a decision is made whether to file amended returns or to approach the assessing officer for an assessment agreement.

The Israel Tax Authority operates a temporary-order procedure that allows the tax on crypto gains to be transferred from an overseas account to the Authority's account at the Bank of Israel. According to the Authority's announcement from August 2026, the procedure has been extended until 31.12.2027. It applies to individuals only, and only if at least one Israeli bank has refused to accept the funds. The application is submitted to the assessing officer on Form 909, accompanied by an affidavit and supporting documents regarding the source of the funds used for the purchase and the coin's trail.

This is not voluntary disclosure. The applicant's details are also forwarded to the Authority's Investigation and Intelligence Division, the Anti-Money Laundering Authority, the Israel Police, and the Bank of Israel. Tax paid under this procedure is not refunded, even if it later emerges that there were losses or credits not included in the assessment.

There is an update regarding depositing the remaining balance in a bank: in October 2026, the Bank of Israel published an amendment to Proper Conduct of Banking Business Directive 411, which will take effect on 1.5.2027. Banks will no longer be able to refuse funds solely because they originate from crypto, and the automatic review threshold of NIS 100,000 per year will be abolished in favor of a risk-based review. The amendment does not guarantee approval of every deposit, and funds that passed through mixers or anonymous wallets will be subject to in-depth scrutiny. On the anti-money laundering aspect, see Proving the Source of Crypto Funds to the Bank.

Failure to report crypto gains can constitute an offense under Section 217 of the Ordinance. If the omission was deliberate and intended to evade tax, it is an offense under Section 220, which carries a maximum penalty of seven years' imprisonment and a statute of limitations of ten years from the tax year.

The Authority now receives information from more sources than ever before. Israel has committed to joining the CARF, the OECD's framework for the automatic exchange of information on digital assets, starting in 2027. On 6.10.2026, the Israel Police (Lahav 433) and the Israel Tax Authority announced the arrest of a suspect for concealing digital currency trading amounting to tens of millions of dollars.

If proceedings have already been initiated, the Tax Authority's Ransom Committee considers, among other factors, the amount of the offense, the rectification of the default, and the personal circumstances. See Ransom Proceedings and Administrative Penalties and Representation in Income Tax Investigations.

1. A confidential meeting with an attorney: what happened, in which years, on which platforms, and what has already been reported.

2. Collecting transaction files and wallet records, and reconstructing the gain and loss in shekels for each year.

3. Reviewing the classification (capital or business) and available offsets, including returns for loss years.

4. Filing amended returns or approaching the assessing officer for an assessment agreement.

5. Paying the tax through the bank, or via the Form 909 procedure if the bank refused, and preparing a document file for depositing the remaining balance.

The cases are led by Adv. and CPA Shlomi Vaknin together with his firm's team. He served for nearly a decade as a national supervisor in the professional division of VAT at the Israel Tax Authority. He has been a certified public accountant since 2000 and an attorney since 2008, so the exposure assessment and tax reconstruction for each year are handled by the same person, and consultations with him are protected by attorney-client privilege.