Crypto Tax Audit in Sherman Oaks

In Sherman Oaks, California, more and more people are engaging in cryptocurrency transactions.  With the increased popularity of cryptocurrency, the Internal Revenue Service (“IRS”) in devoting more attention to how taxpayers are reporting cryptocurrency transactions on their tax returns.  As a result, Sherman Oaks taxpayers who engage in cryptocurrency transactions face a greater risk of being subject to a tax audit (a “crypto tax audit”).

There is various evidence that the IRS is becoming more interested in cryptocurrency transactions.

in year 2020, the IRS solicited consulting services for crypto tax audits.  The IRS will hire outside contractors who are experts in cryptocurrency to assist with crypto tax audits.

This year, the IRS announced the formation of “Operation Hidden Treasure” – a dedicated team of IRS criminal investigation and fraud enforcement professionals to address cases of unreported cryptocurrency income.

In addition, the question – “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” – appears on the first page of year 2020 Form 1040 tax returns.

The IRS is commencing crypto tax audits in the Sherman Oaks area because it is concerned that many taxpayers are not properly reporting the income from their cryptocurrency transactions on their tax returns.

Cryptocurrency is treated by the IRS as property.  As property, its tax treatment is similar to that for stock.  If you purchase cryptocurrency as an investment and sell it at a gain, you must report such gain as part of your investment income on your tax return.