Did you know cryptocurrency can lead to an increased IRS audit risk? The IRS has taken a hard look at cryptocurrencies such as Bitcoin and now demands to know about any transactions you’ve conducted. The failure to report cryptocurrency holdings and transactions substantially increases your risk of an IRS audit.
The IRS asks all US persons “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency? The IRS now treats virtual currency in the same manner it handles other investments such as stocks.
The IRS recently sent out thousands of letters to US taxpayers with cryptocurrency transactions warning of the failure to report income or pay the taxes owed. US taxpayers are required by law to report all cryptocurrency transactions, no matter how small. However, reporting your use of cryptocurrency is not the extent of your responsibilities in the eyes of the IRS.
Cryptocurrency can lead to an increased IRS audit risk from an international tax and FBAR reporting perspective as well. US persons are required to report any and all offshore bank, investment or financial accounts which exceeded $10,000 at any point in 2019, even if only for a day. This applies to cryptocurrency accounts as well.
Keep detailed records of any acquisition, transaction or transfer of cryptocurrency and expect the IRS to ask substantial questions. The IRS believes millions of cryptocurrency transactions are going unreported.
Many US taxpayers who work with cryptocurrency believe they are too small or too clever to be caught. The IRS has extensive worldwide electronic information sharing agreements with banks, financial institutions and exchanges. Your risk includes not only heavy fines but the genuine risk of criminal tax evasion. The IRS has aggressively pursues these cases which can result in up to 5 years in prison and additional fines up to $250,000.
You need the experienced international and domestic tax attorneys, accounting and tax preparation services of Allen Barron. Cryptocurrency can lead to an increased IRS audit risk however well structured transactional planning and strategy can reduce your risk and ultimately your tax exposure. We invite you to contact Allen Barron or call 866-631-3470 to learn more or to schedule a free consultation.
