In recent years, cryptocurrencies like Bitcoin and Ethereum have gained immense popularity, leading to a surge in people buying and selling digital assets. However, with the rise of these digital currencies, the Internal Revenue Service (IRS) is taking a more serious approach to ensure tax compliance in the crypto space.
For tax purposes, the IRS treats digital assets as “property,” similar to stocks or real estate. To tackle the complexities of cryptocurrency taxation, the IRS launched “Operation Hidden Treasure” in 2021, targeting individuals who fail to report their cryptocurrency income on their tax returns. Furthermore, the Inflation Reduction Act of 2022 allocated substantial funds to the IRS, a portion of which is dedicated to monitoring and enforcing cryptocurrency tax regulations.
Looking ahead, the IRS has laid out its strategic plan from 2023 to 2031, signaling its commitment to enhancing enforcement actions concerning digital assets. Stricter reporting requirements are being imposed on cryptocurrency brokers, including exchanges, which will provide the IRS with more data to closely monitor taxpayers involved in virtual currency transactions.
Taxpayers should take heed of the evolving tax reporting requirements for digital assets. Recent federal income tax returns have included questions about “digital assets,” including Non-Fungible Tokens (NFTs), which represent unique digital or real-world items on the blockchain.
Though cryptocurrencies offer a degree of anonymity, the IRS has demonstrated its ability to trace digital assets. In a recent court case, the IRS successfully obtained the cryptocurrency account information of a Coinbase customer.
To navigate the ever-changing landscape of cryptocurrency taxation, it’s crucial for taxpayers engaging in digital currency activities to stay informed and seek professional tax advice. Reporting cryptocurrency activities accurately and honestly is vital to avoid potential penalties or legal troubles with the IRS. Remember, compliance is key to stay on the right side of the law while delving into the world of digital currencies.
Article in The Pittsburg Post Gazette
Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649