Close

Tax News

Cryptocurrency Tax Enforcement

Share this article...

Cryptocurrency Tax Enforcement

Because no centralized institution records each cryptocurrency transaction on the blockchain, it is inherently more difficult for the IRS to track these transactions — thus rendering cryptocurrency conducive to money laundering. That may continue to be the case until, perhaps, the IRS makes an example or two out of particularly noncompliant taxpayers.

IRS has a dedicated task force investigating possible tax fraud by underreporting income from cryptocurrencies. In addition, the IRS Large Business & International Division recently added virtual currency to its list of compliance campaigns (see press release, "IRS Announces the Identification and Selection of Five Large Business and International Compliance Campaigns" (July 2, 2018), available at tinyurl.com/y9jwwo3s). In its summons to cryptocurrency exchange Coinbase, the IRS claimed that only 800 to 900 people electronically filed a Form 8949, Sales and Other Dispositions of Capital Assets, that included a property description likely related to bitcoin each year from 2013 to 2015 (Velarde, "Open Questions About Bitcoin Examined by Official, Practitioners," 155 Tax Notes 1095 (May 22, 2017)). However, IRS efforts seem focused on urging compliance (see IRS news release IR-2018-71) without providing more of the much-needed guidance on virtual currency.

Coinbase is providing — or already has provided — user data (including name, Social Security number, date of birth, and account activity) to the IRS for those who bought, sold, sent, or received more than $20,000 through their accounts in a single year between 2013 and 2015. This disclosure resulted from a court decision in November 2017 that narrowed the federal government's original John Doe summons to Coinbase (Coinbase, Inc., No. 3:17-cv-01431 (N.D. Cal. 11/28/17) (order to enforce summons)). While the decision apparently reduced the number of affected Coinbase customers by 97% to only 14,000 customers (Foster, "Judge Vastly Narrows Summons on Coinbase Bitcoin Exchange Users," 157 Tax Notes 1374 (Dec. 4, 2017)), precedent now paves the way for the IRS to issue summonses to other cryptocurrency exchanges.

PDF
Printable PDF

Have a Question About This Topic?

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the Terms of Use and Privacy Policy.

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

 

Track Your Refund

 
Track Federal Refund Check Federal Amended Return Refund

Check your State Refund

Client Login

 

Refer a Friend

.