A reckoning is coming for cryptocurrency enthusiasts, who, in the past, enjoyed broad discretion as they completed (or failed to complete) their tax returns. While crypto has technically always counted as taxable property or income, the IRS has only recently ramped up its efforts to hold traders accountable. The latest initiatives involve the pursuit of users’ trading history, which can be compared with tax returns to determine the accuracy of reported tax liabilities. Top strategies for securing crypto trading history are outlined below:
Demanding Information From Exchanges
The exchanges once depended on to keep sensitive information private may no longer be able to do so. The IRS has already succeeded in demanding information from such exchanges and will likely continue to prove successful in future efforts.
The most notable example of the IRS securing crypto history involves Coinbase — a top digital currency exchange system. The IRS initially demanded information on hundreds of thousands of Coinbase’s users. Coinbase managed to reduce this to approximately 13,000, but this still constituted a significant victory for the IRS. Ultimately, impacted users included those who conducted transactions exceeding $20,000 in a single year between 2013 and 2015.
Tracking Via Chain Analysis
Until recently, the IRS has only managed to succeed in gaining crypto trader information by demanding it from specific exchanges. Efforts to secure this data will likely prove more fruitful in the near future, as the agency has partnered with forensics firm Chain analysis to more effectively track the flow of cryptocurrency. Chain analysis is believed to have offered the IRS a tool capable of visualizing and analyzing blockchain transactions. The goal? Pinpointing money laundering and other forms of crypto fraud. Finally, the IRS Criminal Investigation Division is pursuing in-depth training for its agents, who will soon be better equipped to detect crypto-related tax evasion.
If you’re currently dealing with an IRS crypto issue, you deserve support from a tax expert who understands the implications of virtual currency. The Highland Tax Group can act as your advocate; reach out today to learn more.