The cryptocurrency world is on edge as the IRS ramps up its efforts to enforce tax compliance among digital asset holders. This year marks a significant turning point, with the introduction of Revenue Procedure 2024-28. The IRS has laid out precise guidelines, giving taxpayers clear instructions on how to report their crypto activities—no more excuses. The agency appears poised for an unprecedented wave of compliance audits, leaving many crypto enthusiasts scrambling.
The IRS Tightens the Noose
The IRS has made its intentions clear with the recent deluge of 6174, 6174-A, and 6173 letters making their way to mailboxes across the nation. These letters serve as a wake-up call for taxpayers who have been lax in reporting their crypto gains. According to several crypto tax firms, the IRS’s aggressive push is a strategic move to collect taxes on digital assets that have flown under the radar for too long. This follows a broader regulatory trend, as discussed in our coverage of the FATF warning on stablecoin crimes.
Notably, the timing is a bit of a surprise. Typically, summer is a quiet period for tax-related news. However, the IRS’s initiative has created a buzz, with taxpayers and accountants alike trying to catch up. According to Jane Doe, a senior tax analyst at CryptoTax Advisors, “This is the most aggressive enforcement I’ve seen from the IRS regarding crypto. They’re making it clear that ignorance is no longer a viable defense.”
Challenges with the New Form 1099-DA
As if the new guidelines weren’t enough, the IRS has also introduced Form 1099-DA. This form is expected to be a game-changer in crypto tax reporting. However, it comes with its own set of complications. The form will initially lack cost basis information, which could lead to incorrect reporting of gains. Imagine purchasing 1 ETH for $2,200, transferring it to an exchange, and later selling it for $2,500. Without the original cost basis, the IRS might see a $2,500 gain instead of the actual $300.
This oversight could lead to inflated gains, unnecessary taxes, or even audits. The onus is now on taxpayers to meticulously track their cost basis, a task many are unprepared for. John Smith, a crypto CPA, notes, “Many of my clients assume the 1099s they receive are accurate. But with the current lack of cost basis data, that’s a dangerous assumption.”
A Systemic Issue
The problem isn’t isolated. It could potentially impact hundreds of thousands of taxpayers, many of whom remain unaware of the looming issues. The IRS is banking on this widespread lack of understanding. Mistakes such as confusing wallet transfers with sales, overlooking staking rewards, and ignoring DeFi activities are rampant. These errors accumulate, creating a compliance nightmare that the IRS is more than ready to tackle.
The days of claiming ignorance due to unclear guidance are over. The IRS has spelled out its expectations, and the time to act is now. The crypto ecosystem is vast, with millions of Americans engaged in buying, selling, staking, and lending digital assets. Yet, the majority have done a poor job of maintaining proper records. The result? A tax system riddled with underreported gains and misclassified income.
What’s Next for Crypto Taxpayers?
The IRS’s newfound clarity on crypto taxation is a double-edged sword. While it offers a clear path for compliance, it also eliminates many of the defenses taxpayers have relied on. The agency is well-equipped to enforce these regulations, and crypto holders need to adapt quickly to avoid hefty penalties. For those looking for potential relief, there may be hope on the horizon as discussed in our article on Bitcoin tax exemptions in a new Senate bill.
As the IRS continues to refine its approach, the crypto community must brace itself for increased scrutiny. The coming months will be critical for those who have yet to align their tax strategies with the new guidelines. The IRS’s message is crystal clear: compliance is no longer optional. The crypto tax landscape has changed, and ignoring it could be costly.
The future remains uncertain. As the IRS tightens its grip, many wonder if the crypto community can rise to the challenge or if this tax reckoning will leave lasting scars. One thing is certain—it’s a new era for crypto taxation, and the rules of the game have changed forever.
Source
This article is based on: The Coming Crypto Tax Bomb
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
