IRS reports problems with crypto tax enforcement

Digital asset seizure values have grown exponentially, topping $7 billion in 2022, but compliance enforcement with virtual currency is difficult, according to a new Treasury Department report.

Highlights: The Treasury Inspector General for Tax Administration report found:

• The number of types of virtual currency grew from 5,000 in April 2020 to more than 26,000 as of July 2023.

• 2.7 million people in 2022 checked the 1040 box indicating they received, sold, sent, or exchanged crypto, but the report notes challenges with identifying taxpayers with digital assets transactions due to a lack of third-party reporting.

• Between 2018 and 2023, the IRS Criminal Investigation unit saw a 113% increase in cases involving digital assets.
  

New Reporting Rule: The Treasury Department and IRS recently released a final rule establishing reporting requirements for brokers of digital assets with ICBA-advocated provisions to promote a level playing field.

• ICBA in 2023 submitted a comment letter to the IRS supporting the digital asset broker rule, saying it would dispel questions about the tax treatment of digital assets.

• In a separate comment letter earlier this year, ICBA said recordkeeping and reporting requirements on crypto transactions are not enough to adequately protect U.S. consumers and businesses.