The IRS Is Watching
The IRS has made cryptocurrency enforcement a top priority. They issued John Doe summons to major exchanges like Coinbase, Kraken, and Circle. They added a cryptocurrency question to the front page of Form 1040. They created a dedicated crypto compliance unit. If you traded crypto and did not report it, the question is not whether the IRS will find out. The question is when.
How Crypto Is Taxed
The IRS treats cryptocurrency as property, not currency. Every time you sell, trade, or use crypto to buy something, it is a taxable event. You calculate gain or loss based on your cost basis. Short-term gains on crypto held less than a year are taxed at ordinary income rates. Long-term gains get the preferential capital gains rate.
The complexity explodes when you factor in airdrops, staking rewards, DeFi yield farming, NFT transactions, and cross-chain swaps. Each of these has different tax treatment and most people have no records.
The Record-Keeping Problem
Most crypto investors have transactions across multiple exchanges and wallets. They traded thousands of times. They lost access to wallets. Exchanges closed. Records disappeared. Reconstructing the cost basis for every transaction is a massive undertaking.
A tax attorney works with crypto forensic tools to reconstruct your transaction history, calculate accurate cost basis, and prepare amended or delinquent returns. We also negotiate with the IRS when the record-keeping gaps make precise calculations impossible.
Voluntary Disclosure
If you have unreported crypto income, coming forward voluntarily is almost always better than waiting for the IRS to find you. Voluntary disclosure can eliminate criminal prosecution risk and reduce penalties. A tax attorney guides you through this process and protects you with attorney-client privilege throughout.