Can IRS access my cryptocurrency transactions?

IRS crypto guidelines

The IRS crypto guidelines are clear on what cryptocurrencies are. And with how they’re proceeding, there could be more complex tax rules ahead. Read on and find out how to stay on top of the game.

The IRS

According to Investopedia, The Internal Revenue Service (IRS) is a U.S. government agency responsible for the collection of taxes and enforcement of tax laws. Their job is to collect taxes on anything that’s taxable and enforce laws if someone’s messing up with the system.

How the IRS sees Cryptocurrency?

Cryptocurrency or Virtual Assets or Digital Assets is a new asset class that has grown in the past 10 years. When something looks like money and works like money, then we can consider it as money (or something valuable). Also, it needs regulations so bad actors won’t exploit it. That’s where IRS stepped in in 2014 with initial guidance on how these assets will be considered for tax purposes.

According to the IRS crypto guidelines, it considers cryptocurrency or digital assets as property. Therefore, all the laws that are applicable to property are applicable to these assets. So, any gain or loss on trading digital assets will be fall under a capital gain or loss tax bracket.

IRS crypto guidelines: How does it enforce laws?

When something is taxable and the IRS asks you to report it – you gotta report it. It is the responsibility of everyone to comply with the laws and be on the right side of the line. However, there could be a ton of instances where some might not abide by these laws. That’s when the IRS crypto guidelines step in and enforce the law.

However, to find tax-evading individuals or businesses, it is important for the IRS to have information on who is buying cryptocurrency or selling it for a profit, transferring it across different accounts and so on. They can get this information from various legal ways from different parties involved in these transactions.

How the IRS got information from Coinbase?

It all started in 2016 when the IRS served Coinbase customers a “John Doe” summons, requesting information on their crypto activities. A John Doe summons is an order to a person or group of people whose names are not known. In tax law, the IRS issues this summon to a third party to provide certain information on an unknown or unnamed taxpayer who may be liable to pay tax.

Thus, the IRS summon was for Coinbase to provide information on customers who traded virtual currencies from 2013 to 2015. Initially, the IRS crypto guidelines were seeking information on all Coinbase customers in the US. However, a series of court hearings narrowed the number to about 13,000 customers who had dealt with crypto resources worth at least $20,000.

The case dragged on, and in November 2017, Coinbase was ordered by the court to produce information on crypto traders in this bracket. This information included taxpayer ID number, name, birth date, records of recent crypto activities, and statements of accounts.

Coinbase accepted the ruling and in 2018, sent emails to its 13,000 affected customers that it will send their data to the IRS within 21 days. However, this hasn’t ended yet. The latest one is a 1099-K form that was issued by Coinbase to remind its customers to pay taxes on their gains. The criteria is that a customer might have more than 200 receipt transactions on Coinbase or exceed $20,000 in cash received for 2017 calendar year.

For the IRS and other law enforcement agencies, crypto is like a “Swiss Bank Account” for the digital era. Authorities’ clamp down on these activities means that they want to get into regulating it. Also, they want to ensure that investors don’t hide behind crypto for money laundering.

However, the situation is different for crypto traders and investors.  For one thing, they can’t dodge crypto taxes. Also, more stringent crypto tax rules are coming. And traders are wondering if crypto exchanges won’t end up giving all their data to tax authorities.

Complex Path

Going behind exchanges, wallets, cloud mining services to get information on users beyond certain thresholds is one way

Simple Path

Reaching out to email providers to provide emails having certain subjects would be much efficient. It’s also easy way to find those who are making transactions on local and non-local exchanges and trading avenues.

Can IRS access your transactions?

Technically yes! But will they have the interest in doing so? That’s a subjective question depending on what your situation is.

If you are a normal trader, you could get notices of under-reporting or misreporting your gains. This could come from 1099 forms that the exchange you trade on issues.

However, it’s different if you are doing something big that’s causing issues on various grounds like KYC/AML. With this, there is a good chance that IRS could find you easily with the technology they have.

Bitcoin is not anonymous! It is very much traceable.

Also, don’t be under the impression that Bitcoin or any cryptocurrency is anonymous. Cryptocurrencies like Bitcoin are more transparent and traceable than cash. Bitcoin works on blockchain technology. Therefore, authorities can trace every transaction you do back to your address. Thus, not paying attention to IRS cryptocurrency guidelines may cost you someday.

Therefore, as a trader or investor, it’s your responsibility to comply with your country’s laws to stay clean. If you want to know how to get your crypto tax game up, here’s a guide for you: What are the penalties for not paying crypto tax? – And how to stay clean by complying.




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