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Can using crypto place you at risk for an audit?

On Behalf of | Jun 14, 2022 | Cryptocurrency Issues & Audits

Investment in cryptocurrency faces Georgia taxpayers with many issues. A return on your investment is very expressly not guaranteed. Yet many investors continue to take the risk. As they do so, they may be skirting around the issue of not properly reporting these investments at tax time. The IRS is taking full notice.

Crypto sales and trades may often go unreported

Cryptocurrency issues and audits remain a topic of potential hazard among investors. There are key differences between acquiring and trading crypto as opposed to traditional assets such as stocks and bonds. Not every broker or service that deals in crypto feel compelled to file a 1099 for the transaction.

As a result, the IRS has taken steps to ensure that crypto earnings are reported in the proper fashion. These are designed to police full compliance with the laws that enforce compliance with existing tax obligations. Those who are found to be lacking in this regard may face a number of increasingly severe penalties.

The IRS may mandate audits for crypto traders

One of the steps that the IRS is reportedly considering will be to mandate a series of tax audits for crypto traders. The agency has recently changed Form 1040 to include the direct question of whether the filer has traded in crypto. Not answering the question in a truthful manner can lead to tax trouble. Even an honest answer may result in an impromptu agency audit.

The IRS has recently sent a series of warning letters to people that it suspects of not properly reporting their crypto gains. If you have received such a letter, you can reasonably take it as a sign that an audit may be on the horizon. It may be wise at this point to prepare for such a move.