IRS Audits Targeting Cryptocurrency and NFTs: What Taxpayers Need to Know in 2022News, Offshore Account Update
Posted in on March 31, 2022
Cryptocurrency investing and non-fungible tokens (NFTs) hit the mainstream during the COVID-19 pandemic. But, even before the recent boom, digital assets were already on the Internal Revenue Service’s (IRS) radar. The IRS has been prioritizing enforcement related to Bitcoin and other digital assets for years; and, as the popularity of digital assets has grown, the IRS’s interest in these assets has grown as well. In this article, Maryland tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what cryptocurrency and NFT investors need to know in 2022:
Cryptocurrency and NFT Investors Must Report All Taxable Transactions to the IRS
While the IRS has yet to provide clear guidance on NFTs, it is generally understood that NFTs, like cryptocurrencies, are “property” for federal income tax purposes. This means that the tax treatment of cryptocurrency and NFT transactions is similar to the tax treatment of transactions involving the purchase and sale of securities.
Cryptocurrency and NFT investors must report all taxable transactions to the IRS—and they must do so in the relevant tax year. Attempting to report past years’ income on an annual return is referred to as a “quiet disclosure,” and it can (and often will) lead to IRS enforcement action. For investors who have not reported their transactions prior to 2021, it will be necessary to evaluate the available options and make an informed decision about how to come into compliance.
Failure to Report Crypto and NFT Transactions Can Lead to an IRS Audit or Investigation
Cryptocurrency is not as anonymous as it used to be. The IRS has several ways to identify the parties to cryptocurrency (and NFT) transactions if these parties do not report their transactions on their returns. When the IRS discovers through a third-party source that a taxpayer is not in compliance with the law, it may launch a tax audit or a criminal tax fraud investigation.
IRS Audits and Investigations Can Lead to Substantial Penalties
IRS audits and investigations can lead to substantial penalties for cryptocurrency and NFT investors. Audits can lead to liability for past-due taxes, interest and civil fines, while investigations can lead to criminal fines and prison time. The IRS and its Criminal Investigation Division (IRS CI) have ramped up their efforts to target cryptocurrency and NFT investors, and we have seen an increase in case numbers in recent years.
For cryptocurrency and NFT investors who are not currently in compliance, taking a proactive approach to resolving their issues can reduce the risks of facing IRS audits and investigations. If you need guidance, we encourage you to contact us for more information.
Request a Confidential Consultation with Maryland Tax Lawyer Kevin E. Thorn
Maryland tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, brings well over a decade of relevant experience to representing cryptocurrency and NFT investors in IRS-related matters. To discuss your situation with Mr. Thorn in confidence, please call 240-235-5096, email firstname.lastname@example.org or request an appointment online today.Share This Post