Buying Cryptocurrencies? The IRS is Very Interested in Your Taxes

The United States government has recently taken a keen interest in cryptocurrencies as they become more prevalent in the mainstream. This is partly because cryptocurrencies have the ability to offer many benefits to citizens and businesses alike. 

For example, cryptocurrencies offer faster and cheaper payments than traditional payment options, making them popular with businesses who want to avoid expensive fees. Moreover, cryptocurrencies are also much more private than other payment options, meaning that anyone can use crypto without fear of prying eyes. 

Moreover, many governments are hopeful that cryptocurrencies can help reduce corruption and tax evasion. For example, Venezuela, which is struggling with hyperinflation, has expressed interest in using cryptocurrencies to reduce the money supply and avoid capital controls. The US government is also interested in cryptocurrencies for the same reasons, which explains some of their recent actions.

So, what does all of this have to do with you? We explain the IRS’s growing crypto interest and more below, so keep reading to find out. And in the meantime, if you need legal counsel for crypto- or tax-related matters with the IRS, be sure to contact the Law Offices of Mary E. King today. With more than 30 years of tax law experience, Mary and her team can provide you with the legal counsel you deserve.

Back in 2014, the IRS began rolling out its three phases that targeted virtual currencies. Let’s review each below to better understand the IRS’s position on the matter.

The IRS started educating taxpayers about virtual currencies in the first phase. This was done by the IRS through a webpage dedicated to virtual currencies and a page with frequently asked questions. Additionally, the IRS issued press releases reminding taxpayers of their responsibility to report transactions.

The IRS began collecting information about taxpayers who use virtual currency transactions in the second phase. John Doe Summonses were used to target businesses that facilitate cryptocurrency transactions, such as Coinbase in 2016 and Kraken in 2021. When the IRS does not have taxpayer names, it uses a John Doe summons. The John Doe Summons sent to Kraken asks for transaction information and names of taxpayers in the United States who have conducted transactions worth at least $20,000 between 2016 and 2020.

The IRS and Department of Justice have begun to use this information in the third phase to bring criminal and civil charges against one of the two individuals arrested in February 2022 for allegedly laundering $4.5 million in cryptocurrency. The government also seized $3.6 Billion in cryptocurrency. In February 2022, the Department of Justice named the first Director of the National Cryptocurrency Enforcement Team.

The United States government wants to classify cryptocurrency trading as a security in order to subject it to securities laws. This could represent a significant change in the regulatory environment for cryptocurrencies. By classifying trading as a security, the US government could impose a range of new regulations on cryptocurrency exchanges, including registration requirements and a myriad of investor protections.  

The classification as security could also mean that cryptocurrency trading is subject to the full panoply of securities regulations. This means that exchanges would be required to register with the SEC and comply with a plethora of requirements, including compliance with the federal financial institution’s laws, including anti-money laundering (AML) and know-your-customer (KYC) regulations.

As it stands, the IRS is ramping up its look into crypto, including increased audits for people who buy virtual currencies. As such, it is good practice to start recording all of the transactions you make using cryptocurrency.

If you’re at all concerned that you’ve not properly reported such transactions, you should consider speaking with an experienced tax lawyer right away. At the Law Offices of Mary King, we deal with the IRS and tax law on a daily basis and have been doing so for decades. As such, we can provide the legal guidance and direction you need in the event that you are audited. We are committed to fighting for the rights of our clients, so don’t delay in giving us a call. You can trust that we will work hard to get you the best outcome if you face penalties and fees from the IRS.

With the IRS’s growing interest in crypto, it’s important to have experienced legal counsel in your back pocket in the event of an audit or other tax-related matters. At the Law Offices of Mary E. King, we’re committed to fighting for your rights, so be sure to contact us at 941-906-7585 or via our contact form .