IRS steps up tax enforcement for cryptocurrencies

Personal Finance

Anthony Wallace | AFP | Getty Images

A woman touches an ATM machine for digital currency Bitcoin in Hong Kong on December 18, 2017.

Back in 2013, Tyson Cross, a tax attorney in Reno, Nevada, helped a few dozen of his clients report cryptocurrencies on their tax returns.

Today, that business has mushroomed.

“I did close to 1,000 consultations last year where I talked to people who have income from cryptocurrencies and tax questions,” Cross said. “They realize the wild west days are coming to an end.”

“The IRS knows many people have made tremendous wealth with cryptocurrencies,” Cross said.

In 2014, the Internal Revenue Service issued guidance on how taxation should be applied to virtual currencies. For one, the government decided it was not actually a currency.

“They said, ‘Yes people call them currencies, but we’re not legally treating it as a currency because it’s not issued by a sovereign’,” said Jeff Bandman, former FinTech advisor for the Commodity Futures Trading Commission. “The IRS was relatively forward-thinking for a government body.”

Today there’s a virtual currency team within the IRS. The agency also hired a cryptocurrency software company called Chainalysis to “trace the movement of money through the bitcoin economy,” according to a contract obtained by the Daily Beast.

In 2016, the agency summoned Coinbase, one of the most popular cryptocurrency exchanges, for data on U.S. taxpayers. As a result, Coinbase had to disclose information on more than 14,000 users.

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