Crypto Tax Consultant Dallas

Whether you’re being audited because of your crypto, or your investments merely complicate the process, the goal is to demonstrate that you filed your tax returns correctly and paid the right amount.

Here’s how the cryptocurrency audit process functions:

• The IRS will request records to substantiate the information on your tax returns. This can include paychecks, bank statements, and receipts for any expenses you claimed.
• In the case of a cryptocurrency audit, you will also need a detailed report of your trading history for the years in question.
• The audit examiner’s primary objective is to assess whether you reported correctly and paid the proper amount in taxes.
• At the conclusion of your audit, they will evaluate the amount owed. Collections won’t commence immediately, and you possess the option to appeal. 
• If, during your crypto audit, the IRS finds reason to suspect you deliberately attempted to conceal funds or otherwise commit a tax offense, they may refer the case to the Criminal Investigations Division or the Department of Justice for criminal prosecution.

Common triggers for a cryptocurrency audit include:

• Failing to report crypto on your tax return
• Omitting certain exchanges or wallets from your return
• Miscalculating your capital gains or ordinary income

Many digital asset exchanges report some information about your activity to the IRS. If your tax return doesn’t align, you could be flagged. This is true even if you lost money or made minimal gains.

Once the IRS starts receiving Form 1099-DA from crypto exchanges, we anticipate that cryptocurrency audits will surge.

A standard audit covers your last 3 years of tax returns. However, during the audit process, if the IRS suspects you’ve underreported by at least 25%, they can extend back 6 years.

If you’ve held crypto for several years and haven’t consistently reported it accurately, there’s a significant chance of this happening to you.

For example, suppose you’re undergoing a crypto audit covering the years 2017, 2018, and 2019. When the IRS examiner reviews your records for 2017, they notice that some coins were sold. They ask when you first acquired those coins, and you inform them you bought the coins in 2014. 

If you didn’t report any cryptocurrency before 2017, the IRS examiner may now suspect that you’ve significantly underreported your taxable income. The years 2014, 2015, and 2016 may then be opened up to an audit, as well.

If the IRS suspects you’ve committed tax fraud, there is no statute of limitations for the audit. They can go back as far as they desire in that case.

As we noted earlier, most IRS examiners don’t even comprehend what Bitcoin is—let alone how it should be reported. You need a tax lawyer on your side who:

• Understands how to navigate the audit process
• Can create an accurate crypto tax report (even when you may have lost keys or if you used a now-defunct exchange)
• Knows digital asset tax law intricately to defend your reporting methods

A crypto tax report is a detailed accounting of every single trade—including timestamps of when you bought and sold, the initial amount you spent on the coin, and how much you sold it for. This information is used to determine your capital gain or loss for each transaction. 

Other factors need to be considered too: Long-term gains and short-term gains are taxed at varying rates. Some crypto is considered income and must be reported separately. 

Compiling a proper crypto tax report can be a meticulous, time-consuming process. Do not assume the IRS will do the work to calculate the correct amount owed for you!

We’ve assisted hundreds of clients in creating crypto tax reports for previous years, even if they lack complete records or have lost access to old wallets. We possess thorough legal knowledge, enabling us to create crypto tax reports that withstand the most rigorous IRS scrutiny.

Many of our crypto clients haven’t reported because they fear they won’t be able to pay the taxes they owe on crypto gains.

What most individuals don’t realize is that the audit process is solely concerned with determining the amount you owe. You do not have to pay your full tax bill immediately after the cryptocurrency audit is complete. 

You can establish a payment plan with the IRS. There’s virtually always a payment plan or resolution option that works for our clients and meets the IRS's demands.

You can even appeal your crypto audit results! Our tax attorneys are licensed in US Tax Court, allowing us to appeal your audit decision to the highest levels.