Number of Cryptocurrency Tax Investigation is on the Rise
Cryptocurrency Tax Investigations are on the Rise
The Number of Cryptocurrency Tax Investigation is on the Rise: As the US government had referenced several years back, they foresaw that cryptocurrency would go the way of the Swiss Bank Numbered Accounts — and to some degree they were right. While has become a more common and legitimate from of payment (although not technically currency), there are still users to rely on Crypto solely for anonymity. Fast-forward to 2021 in which the value of cryptocurrency has surged. Despite its more commonplace usage throughout the marketplace, the US government — and specifically the IRS — does not particularly like cryptocurrency for two main reasons:
Since cryptocurrency aims to be anonymous, it makes it very difficult for the US government to investigate and enforce tax rules involving cryptocurrency and US Tax. In addition, since cryptocurrency is not considered currency per se and is not treated as currency by the Internal Revenue Service — the tax rules and regulations involving cryptocurrency are very complicated.
This is compounded by the fact that cryptocurrency is oftentimes used as currency — noting that each time cryptocurrency is exchanged it is a taxable event.
This has led to the IRS taking serious issue with cryptocurrency and significantly increasing enforcement.
Did You Receive a Soft Letter 6173, 6174 or 6174-A?
The IRS has sent various soft letters to taxpayers using IRS letter 6173, 6174, and 6174-A.
All of these letters essentially say the same thing, which is that if you have cryptocurrency or have engaged in crypto transactions and have not properly reported to the US government — you should do so.
While these letters are technically not audit letters, if you received one then it would reflect that the IRS may have you in their crosshairs and you may consider getting into compliance.
Cryptocurrency Tax Audits Increase
Cryptocurrency tax audits are also on the rise.
Unlike a soft letter which is essentially a warning or reminder that you should get into compliance if you have not already done so — an audit/examination notice means the IRS wants to investigate you.
It doesn’t necessarily mean anything major is at issue — or that you may be subject to a more scrutinized special agent investigation. Rather, it just means that for one reason or another, your number came up and the IRS is going to assess your cryptocurrency transactions to determine whether or not you have been tax compliant.
What is Operation Hidden Treasure?
Recently, the IRS let it be known that they had developed a new faction of the fraud investigation unit designed to enforce crypto currency related matters.
As reported by Coindesk:
Crypto Enforcement is on the Rise
In conclusion, the Internal Revenue Service and U.S. government are working to uncover anonymous transactions involving cryptocurrency to ensure the transactions are properly taxed and reported by US taxpayers. In general, enforcement has increased significantly.
If you are out of compliance you may consider getting it to compliance.
Golding & Golding: About Our Tax Law Firm
We specialize in IRS offshore disclosure including the disclosure of previously unreported cryptocurrency.
Contact our firm today for assistance.