As crypto prices see a new rebound with Bitcoin (BTC) leading the pack, US investors are not only anticipating significant returns on BTC and other digital assets but also facing increased scrutiny from the Internal Revenue Service (IRS).
Recent reports indicate that the Internal Revenue Service has dispatched a wave of warning letters to crypto investors, raising alarms about the accuracy of the information they provided on their tax returns.
Crypto Tax Inquiries Skyrocket
In the past two months, the number of these warning letters has spiked, signaling a renewed focus on digital asset reporting. Crypto tax experts have noted that this uptick is markedly higher than in previous years.
David Kemmerer, co-founder and CEO of CoinLedger, reported a dramatic increase in support inquiries related to IRS communications. From May to June, conversations on CoinLedger about “IRS letters” surged to nearly 800, a ninefold increase compared to the same timeframe in 2024.
Kemmerer explained, “Thousands of investors are getting these letters. Naturally, when that happens, we see a flood of customers coming to us asking, ‘What do I do?’”
This sentiment is echoed by two crypto tax attorneys, Jordan Bass and Andrew Gordon, who have also observed a noticeable rise in inquiries regarding these IRS notifications.
Bass mentioned that his firm received inquiries from at least ten recipients of the letters in the last two months, a significant increase from the previous year when no inquiries were reported.
IRS Warning Letters
The IRS has a history of intensifying its efforts to ensure compliance among cryptocurrency investors. Following the agency’s acquisition of thousands of customer records from Coinbase in 2017, it implemented a series of “voluntary compliance” letters aimed at encouraging accurate reporting among investors.
The latest notices inform recipients that the Internal Revenue Service possesses information indicating they hold “one or more accounts containing virtual currency.”
While some letters advise recipients to review their reporting for accuracy, others require a response, either through amended returns or explanations justifying their reported transactions.
Interestingly, Gordon noted a potential commonality among recent recipients of the letters, many of whom had accounts on the Seychelles-based crypto exchange Poloniex, raising questions about the data the IRS may have accessed to trigger these communications.
Kemmerer speculated that the increased outreach from the IRS typically follows the agency acquiring new data, suggesting that the notices might be part of broader enforcement efforts. “I’m sure there are just people randomly getting selected, and the lucky ones get these scary letters,” he said.
Featured image from DALL-E, chart from TradingView.com
