3 things to know about the IRS and cryptocurrency

Cryptocurrency, also known as digital currency, is booming. This relatively new form of currency provides a unique issue for the Internal Revenue Service (IRS). But the IRS is learning. It is figuring out the best way to track down these accounts and hold taxpayers who may attempt to thwart their tax obligations accountable.

As a result, three things taxpayers who have or are considering investing in digital currency should note include:

• Record keeping. It is important to keep accurate records of digital currency transactions. A failure to have records to show your use of digital currency can create issues in the event of a federal audit.
• Increased scrutiny. The focus of the IRS tends to go in waves. It is common for the agency to put extra effort into a focus on different potential infractions. The agency has taken notice of cryptocurrency and is zeroing in on taxpayers who may, either inadvertently or intentionally, failed to meet their legal reporting requirements.
• Court involvement. Do not presume your use of digital currency is a private matter between you and the digital platform. The IRS has used court summons to gather information on Coinbase user accounts. It could do so again.

The agency has used federal agents as well as software to sort through the paperwork and narrow down those who may have violated cryptocurrency reporting requirements. It is becoming much more efficient and accurate tracking down digital currency users. Those who are concerned their assets may not be in line with federal reporting requirements are wise to act to protect their interests. An attorney can discuss your options.