If you're investing in cryptocurrency or have transferred any of your traditional assets into crypto, you should know that the Internal Revenue Service (IRS) has said that crypto tax enforcement is one of the agency's highest priorities. And this isn't just lip service. The IRS has stepped up its enforcement efforts relating to crypto-related tax liability. And next year, we expect that to only increase. Here are a few of the reasons why you, too, should be expecting a crypto crackdown.
John Doe Summonses
The IRS continues to issue high-profile “John Doe Summonses” to crypto dealers. In a John Doe Summons, the IRS orders the company to identify their customers and the transactions that they have made. Being identified by a company doesn't inherently mean that you've done anything wrong, but it allows the IRS to analyze whether your filings properly reflected those identified transactions.
A New Definition of Crypto “Broker”
But in theory, a requirement within the newly-passed Infrastructure Act will end the need for those summonses, as cryptocurrency dealers will need to start issuing a “1099-B” to the IRS, identifying their clients' transactions—just as the IRS is notified of other 1099 income.
At the same time, the new law has broadened the definition of “broker” to include cryptocurrency exchanges—so that more crypto companies will have to be issuing those 1099s.
New Tech Abilities Enable Analysis
Building on its existing crypto investigation abilities, the IRS is continuing to adopt new technology, increasingly able to triangulate transactions that would otherwise have gone unreported. The agency is even using artificial intelligence to identify which of these transactions might be related to human trafficking or other criminal activity.
The Infrastructure law gave the IRS an additional $80 billion in funding. While much of this will be used to modernize the IRS and hire new staff to address traditional assets and filings, we expect this money will also fuel the expansion of its crypto efforts.
If you need help or you have questions about your liability for unpaid taxes for crypto or other assets, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.