Crypto taxpayers are in for a impolite awakening.
We’re 16+ years into Bitcoin, but taxpayers and CPAs nonetheless faux that tax steerage stays unclear and even nonexistent. The IRS is gearing up for a historic wave of compliance audits concentrating on the crypto area, and taxpayers don’t know what they’re in for.
Final yr, the IRS issued Income Process 2024-28, basically altering how crypto must be tracked from a tax perspective. Offering crystal clear steerage, secure harbors for taxpayers to get compliant, and deadlines emigrate by. The foundations are clear, the expectations set, with the IRS quietly positioning itself to challenge a wave of compliance audits for these nonetheless with their head within the sand.
The reckoning is already starting as we’re seeing an unprecedented quantity of 6174, 6174-A, and 6173 letters being despatched out by the IRS.
Usually, this time of the yr is quiet. However for the previous a number of weeks, our cellphone has been ringing continuous from taxpayers receiving these notices from the IRS demanding they get compliant “or else.” And it’s not simply us – crypto tax companies throughout the board are reporting the identical exercise, indicating the IRS is aware of taxpayers have casually engaged in crypto tax evasion, and they’re right here to gather what they’ve failed to gather for the previous decade.
Strategically pairing Rev-Proc 24-28 with the discharge of the brand new Kind 1099-DA, the IRS is positioned to blindside taxpayers and CPAs who’ve uncared for getting compliant. The 2025 tax yr might be pivotal because the IRS now has an abundance of ammunition to make use of in audits. Gone are the times the place taxpayers may defer to defenses like “effectively, the steerage was unclear, so I simply did my finest.” The IRS has been express, the steerage is evident, and the penalties for non-compliance have been outlined, but taxpayers and CPAs nonetheless assume we’re within the Wild West.
On high of this, Kind 1099-DAs might be issued to each taxpayers and the IRS alike by brokers, however there’s a significant catch: the shape received’t embrace price foundation for the 2025 tax yr, and can virtually definitely embrace incorrect price foundation for years after.
Which means while you switch property into an change and later promote them, the sale will get reported — however the change has no concept what you initially paid. Within the absence of that info, the shape defaults to displaying a $0 price foundation. To the IRS or a conventional CPA, it seems to be like pure revenue.
Say you purchase 1 ETH for $2,200, transfer it to Coinbase, and promote it for $2,500. If Coinbase doesn’t have the associated fee foundation, the shape exhibits a $2,500 acquire. Your precise acquire was $300 — however until you’ve tracked that foundation your self, the IRS received’t know. And so they’ll assume the worst.
A widespread downside
This isn’t a one-off state of affairs. It’s going to have an effect on lots of of hundreds of taxpayers.
If these inflated beneficial properties go uncorrected, they’ll both lead to pointless tax owed or set off an audit. And plenty of CPAs received’t catch it, as a result of most nonetheless aren’t geared up to deal with crypto correctly. They don’t perceive how wallets work. They confuse transfers with gross sales. They miss staking rewards and DeFi exercise solely. Shoppers assume their CPA is on high of it. CPAs assume the 1099 is correct. Nobody’s double-checking.
That’s the place issues go flawed. And that’s precisely what the IRS is relying on.
The outdated protection — that the steerage wasn’t clear — doesn’t maintain up anymore. The IRS has been direct. The expectations are spelled out. The time to make things better is NOW, earlier than an enforcement letter is obtained.
Crypto isn’t some edge case anymore. Tens of tens of millions of People have purchased, offered, staked, lent, or transferred digital property. Most have achieved a poor job conserving data. Some haven’t even tried. The result’s a tax system filled with underreported beneficial properties, misclassified revenue, inconsistent filings, and the taxman in search of revenge.
The most typical errors aren’t advanced. Transfers between wallets are flagged as gross sales. Belongings seem on exchanges with no price foundation connected. Staking rewards and airdrops go unreported. DeFi exercise is lacking solely. And yr after yr, taxpayers and professionals depend on CSV exports that had been by no means designed for tax reporting within the first place.
These aren’t edge instances. They’re pervasive amongst crypto traders. And at scale, they add as much as a compliance downside the IRS is now totally geared up to pursue.
That is not about grey areas or technicalities. It’s a few rising mismatch between how taxpayers assume crypto taxes work — and the way the IRS now expects them to be dealt with. That hole is the place the danger lives, and with the established steerage, the IRS received’t be pulling any punches.