As the cryptocurrency market experiences a resurgence, with Bitcoin (BTC) leading the way, American investors are not just hopeful for high returns on their digital investments; they are also encountering heightened scrutiny from the Internal Revenue Service (IRS).
According to recent reports, a significant number of warning letters have been sent out by the IRS, raising red flags regarding the accuracy of information submitted on tax returns by cryptocurrency investors.
Surge in Crypto Tax Enforcement
In recent weeks, crypto tax enforcement has ramped up, with a substantial rise in warning letters signaling a more rigorous approach to reporting digital assets. Financial experts specializing in cryptocurrency taxation have observed this trend, noting it exceeds the levels seen in previous years.
According to David Kemmerer, CEO of CoinLedger, there was a striking spike in inquiries about IRS communications from May to June, with the count approaching 800—a ninefold increase from the same period in 2024.
Kemmerer emphasized, “The volume of letters has caused a wave of concern among investors, prompting many to seek guidance on how to proceed.”
This observation is shared by crypto tax attorneys, Jordan Bass and Andrew Gordon, who report a significant uptick in questions related to these IRS notices. Bass remarked that his practice saw inquiries from over ten individuals who received the letters in just two months, compared to none in the previous year.
Understanding IRS Notices
The IRS has traditionally amplified its efforts to ensure that cryptocurrency investors comply with federal regulations. Following the 2017 acquisition of substantial user data from Coinbase, the agency initiated “voluntary compliance” letters to encourage accurate reporting.
The latest letters inform recipients that the IRS has access to information suggesting they own “one or more virtual currency accounts.”
While some letters simply urge investors to verify their reporting accuracy, others necessitate a response—either through amended returns or justification for the reported transactions.
Interestingly, Gordon pointed out a possible trend among individuals receiving these letters, many of whom had accounts with Poloniex, a crypto exchange based in Seychelles. This raises intriguing questions about the channels through which the IRS collected this information.
Kemmerer further speculated that the spike in IRS outreach often accompanies the agency’s acquisition of new data, implying that these letters could form part of a more extensive enforcement framework. “It seems likely there are random selections, which results in some individuals receiving these alarming notifications,” he commented.
Featured image from DALL-E, chart from TradingView.com
