Introduction
The IRS has made it clear: ignoring crypto taxes is no longer an option. Over the years, we have witnessed a surge in enforcement actions, new guidelines, and high-profile court cases as the IRS ramps up its efforts to ensure compliance in the crypto space. In this timeline, we’ll explore key moments in the escalation of IRS crypto tax enforcement, detailing new staff appointments, significant letters, court cases, and legislative amendments that have transformed how the IRS approaches cryptocurrency.
Timeline of IRS Crypto Tax Enforcement
1. 2014: The IRS Issues Its First Guidance on Crypto Taxes
The journey began in 2014 when the IRS released its initial guidance on virtual currencies. This document classified cryptocurrencies as “property” for tax purposes, making crypto gains subject to capital gains taxes. While this was a major step, it was only the beginning of the enforcement efforts we see today.
2. 2018: The Formation of the Virtual Currency Compliance Campaign
The IRS created the Virtual Currency Compliance Campaign in 2018, signaling the start of a dedicated effort to address crypto tax non-compliance. This campaign was part of a broader effort to educate taxpayers about their obligations and initiate more targeted enforcement actions.
3. 2019: Warning Letters to Crypto Holders
In 2019, the IRS began sending out thousands of letters (Letter 6173, 6174, and 6174-A) to crypto holders who they suspected were underreporting or not reporting crypto-related income. These letters served as a warning and a reminder that the IRS was closely monitoring crypto transactions.
4. 2020: Crypto Question Added to Form 1040
One of the most notable shifts happened in 2020 when the IRS added a question regarding virtual currencies directly to Form 1040. This move ensured that every taxpayer in the U.S. would need to explicitly state whether they had engaged in crypto transactions, making it much harder to ignore the reporting requirements.
5. 2021: Operation Hidden Treasure
In 2021, the IRS launched “Operation Hidden Treasure,” a joint effort between the IRS Criminal Investigation unit and the Fraud Enforcement Office to root out taxpayers who were deliberately concealing crypto income. This operation demonstrated the IRS’s commitment to pursuing crypto-related tax fraud.
6. 2022: Hiring of Specialized Agents
In response to increasing crypto adoption, the IRS hired hundreds of new agents in 2022 with specialized knowledge of blockchain technology and cryptocurrency transactions. The bolstering of staff was a strategic move to better understand and track crypto activities, ensuring more effective enforcement.
7. 2023: The Coinbase Court Order
The IRS also took a significant step by securing a court order against Coinbase, one of the largest crypto exchanges. This order required Coinbase to turn over user data to the IRS, providing details on transactions and customer identities. This landmark action was a wake-up call for crypto investors, highlighting the growing reach of the IRS into the world of digital assets.
8. 2023: Infrastructure Bill Reporting Requirements
The passage of the 2021 Infrastructure Bill, with new reporting requirements effective from 2023, made it mandatory for crypto brokers to report transactions to the IRS, similar to the reporting requirements for traditional financial institutions. This marked a crucial legislative change to further ensure transparency and compliance in the crypto industry.
9. 2024: Operation Token Mirrors
In 2024, the IRS launched ‘Operation Token Mirrors,’ a targeted enforcement effort focusing on individuals and entities involved in pump and dump schemes. This operation showcases the IRS’s ability to trace crypto transactions more effectively and ensure compliance through enhanced scrutiny.
Conclusion
The IRS’s approach to crypto tax enforcement has evolved significantly over the past decade. From early guidelines to the hiring of specialized agents, court orders, and mandatory reporting requirements, the agency is leaving no stone unturned to ensure compliance. For anyone involved in cryptocurrency, understanding this evolving landscape is essential to stay on the right side of the law.