Cryptocurrency owners, along with the financial experts and legal professionals who guide them, should take heed of the Internal Revenue Service’s (IRS) current efforts to ensure compliance among those involved in crypto transactions.
One of the signs that the IRS is giving closer scrutiny to crypto activities is the question added to Form 1040, which asks taxpayers if they have engaged in any crypto transactions.
Those undergoing crypto audits early can expect the IRS to show some leniency as they learn more about what is involved. However, it is still crucial to maintain meticulous records and never rely solely on transaction platforms for data. If possible, it is best to use a platform like Coinbase which provides 1099s each year. Either way, you should keep records in the same way as you would for money held in foreign bank accounts.
There is talk that the IRS may use crypto compliance as a way for the agency to start incorporating artificial intelligence into their audit procedures. With their extensive workload, the IRS lacks the workforce to handle crypto compliance manually, making AI a useful tool for this purpose.
Look for more CPAs to include specific questions about crypto in their engagement letters. While all accounting firms want to provide the best advice possible, it is ultimately the responsibility of the person transacting in crypto report accurate information.
As the IRS intensifies its scrutiny of crypto transactions, it is vital for taxpayers to keep precise records and understand their obligations regarding cryptocurrency reporting.