IRS Reportedly Cracking Down On Crypto Taxes

The U.S. Internal Revenue Service (IRS) is allegedly looking for third-party contractors to assist it with calculating taxpayer’s gains and losses from cryptocurrency transactions, CryptoTrader.Tax said in a blog post on 13 May.

According to the post, the crypto tax software firm received an email from the IRS on 12 May, accompanied by a Statement of Work, which revealed that the tax collecting agency is “engaging outside contractors” to assist its agents in calculating taxpayers crypto transactions. In its post the firm stated that it will not be pursuing the contract, as its “dedication is 100% to our users”.

The letter reportedly stated:

“The Internal Revenue Service is engaging outside contractors to assist our Revenue Agents in calculating taxpayers’ gains or losses as a result of their transactions involving virtual currency. We are placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract.”

The IRS is looking to hire companies that can help it aggregate, value and compute the gains and losses incurred by taxpayers in their crypto transactions. The agency further said in the letter that while the process may be simple in some cases, in others the transactions could be dispersed across multiple exchanges and wallets, with “hundreds of thousands of digital asset transactions” per year.

The document further stated:

“These transactions need to be aggregated, and the assets involved need to be valued, as part of the process of computing gains and losses. Additionally, specialized technology and infrastructure is required to digest, contain, and analyze virtual currency data due to unique requirements such as but not limited to decimal place precision, varying field formats, and file formats.”

The attached six page Statement of Work from the IRS further stated that the agency will also need help with report preparation, data discrepancy analysis, error resolution and report revisions. The firms that take up the job will also be expected to assist the agency with trial preparations, and potentially testify at trials, as a summary witness.

The document revealed that the contractors will have to look through both on-chain and off-chain data, information obtained through API keys, taxpayer submissions, and other sources. In addition, they will have to determine the gains and losses for each taxpayer and note cost basis, track sales and other transactions, and find any inconsistencies in how the taxpayer has reported their data.

Last year, the IRS released a guidance on calculating taxes owed on cryptocurrency holdings. The guidance provided insights into how taxpayers should report hard forks and airdrops, and also provided recommended calculation methods.