Trade Crypto? Find Out if the IRS is Tracking You

Trading cryptocurrency can be a very lucrative venture for those who are brave enough to dive into it. However, the legality of cryptocurrency trading is still somewhat of a gray area in many parts of the world. One of the main concerns of cryptocurrency traders is whether or not their activities are being monitored by the government, specifically the Internal Revenue Service (IRS) in the United States. In this article, we will explore whether the IRS knows if you trade crypto or not.

Firstly, it is important to note that cryptocurrency is a relatively new technology and the laws surrounding it are still in a state of flux. At present, there is no specific law that requires traders to declare their cryptocurrency holdings or profits to the IRS. However, the fact that cryptocurrency transactions are recorded on a public ledger means that they are not entirely anonymous.

The IRS has made it clear that they expect cryptocurrency traders to report their earnings in the same way that any other form of income is taxed. In fact, the IRS issued guidance on this matter in 2014 in which they classified cryptocurrency as property for tax purposes, meaning that gains made through trading are subject to capital gains tax. Failure to report cryptocurrency earnings could result in hefty fines or even legal action.

So, does this mean that the IRS is actively monitoring cryptocurrency traders? The short answer is yes. The IRS has been stepping up its efforts to crack down on tax evasion in recent years, with cryptocurrency trading being a particular focus. In 2018, the IRS obtained a court order requiring Coinbase, a popular cryptocurrency exchange, to hand over customer data for certain transactions. This suggests that the IRS has the capability to monitor cryptocurrency transactions if they choose to do so.

In addition to this, the IRS has also been providing guidance to its agents on how to identify potential cases of cryptocurrency tax evasion. This includes looking out for any transactions involving large sums of money, overseas accounts, or the use of privacy-enhancing tools such as VPNs or Tor. So, if you are a frequent cryptocurrency trader, it is likely that the IRS is keeping an eye on your activities.

Of course, this does not mean that every cryptocurrency trader will come under scrutiny from the IRS. The IRS has limited resources and is unlikely to go after every individual trader. However, if you are making substantial profits through cryptocurrency trading, it is important to ensure that you are reporting your earnings accurately to avoid any potential legal issues.

In conclusion, while there is no specific law that requires traders to report their cryptocurrency holdings to the IRS, the agency has made it clear that it expects traders to report their earnings and pay the appropriate taxes. The fact that cryptocurrency transactions are recorded on a public ledger means that the IRS has the capability to monitor traders if they choose to do so. As with any form of income, it is important to ensure that you are reporting your cryptocurrency earnings accurately to avoid potential legal issues.