IRS Increases Scrutiny on Crypto Holders Amid Rising Audit Risks
IRS audits for cryptocurrency holders are increasing in 2025, focusing on accurate tax reporting. Small oversights can lead to significant penalties.
- Wallet-based accounting: Individual tracking of each wallet's transactions is required. Avoid consolidating trades into a single spreadsheet.
- Misreporting staking rewards: Staking rewards are taxable when received, not at the time of sale. Accurate reporting is essential to avoid regulatory scrutiny.
- Overlooking IRS communications: Notices like Notice 6371 and Form 1099-DA require careful review. Discrepancies can trigger audits.
- Failing to report all transactions: All activities, including those on decentralized exchanges, must be included in tax filings. The IRS uses blockchain analysis tools to track transactions.
- Cost basis adjustments: New guidelines allow reallocation of unused cost basis. Careful documentation is necessary to avoid excessive deductions that may raise audit flags.
Audit readiness
Maintaining compliance requires reliable crypto tax software, thorough record-keeping, and transparency regarding past errors. This proactive approach prepares investors for potential IRS inquiries.