Beverly Hills

When you receive notice in Beverly Hills, California that you are involved in a tax audit, there are three things that you should not do.

First, you should not panic.

Second, you should not “put your head in the sand” and ignore the audit.

Third, if the tax audit involves a particular area, you should not hire someone to represent you in the tax audit unless the person is familiar with such particular area.  Thus, if you are the subject of a tax audit involving cryptocurrency (a “crypto tax audit’), you should not hire someone to represent you unless the person understands cryptocurrency transactions.

This third point is particularly important today because, with cryptocurrency transactions taking place on a daily basis, the Internal Revenue Service (the “IRS”) is devoting more time to examine how Beverly Hills taxpayers are characterizing cryptocurrency for tax purposes.  Because of this increased focus by the IRS on cryptocurrency, the risk that Beverly Hills taxpayers who engage in cryptocurrency transactions will be involved in a crypto tax audit has correspondingly increased.

In various ways, the IRS is evidencing increased attention on cryptocurrency transactions.

In year 2000, the IRS sought to hire experts in cryptocurrency to help with crypto tax audits.

In year 2021, the IRS formed “Operation Hidden Treasure” – a dedicated team of IRS criminal investigation and fraud enforcement personnel to review unreported cryptocurrency income cases.

In addition, on year 2020 tax returns, taxpayers must answer the question – “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”.

The IRS is of the belief that taxpayers are nor correctly including cryptocurrency income on their tax returns and, thus, will commence crypto tax audits in the Beverly Hills area.

Treated similar to stock, cryptocurrency is viewed by the IRS as a form of property.  If cryptocurrency is bought as an investment for $15 and then it is sold for $25, the $10 of profit needs to be included on your tax return as cryptocurrency income.