Traders Beware: The Crypto Tax Compliance Crackdown Has Arrived
US cryptocurrency traders, investors, and other market participants may think that assets like Bitcoin and Ethereum are so anonymous as to be untaxable, and some are about to get a painful lesson on how the technology really works. There is no identifying information in transaction or token data inscribed onto the ledger, sure, but you’re only truly anonymous if you’ve mined your cryptocurrency, bought it with cash, and transacted through dApps exclusively. This describes only the smallest fraction of crypto enthusiasts.
For the rest of us who have (for good reason) traded on larger and more centralized exchanges which also allow fiat depositing, it’s a sobering reminder that these friendlier platforms only exist because financial watchdogs allow them to. One condition of this tentative approval is that your crypto wallet must be associated with your real identity, due to KYC (Know Your Customer) and AML (Anti-Money Laundering) laws. For many traders, centralized exchanges reside at the root level of their crypto portfolio, and now that this nut has been cracked global tax authorities are completely plugged into the sector.
This is why so many in the US—over 10,000 in fact—are recent recipients of a letter from the IRS which says in so many words, “We see you, now pay up.”. Fresh on the heels of the recent G20 summit, where major global markets all agreed to follow the same set of FATF (Financial Action Task Force) rules, the IRS is now beginning a campaign to clamp down on US residents who have transferred or transacted cryptocurrency in virtually any way, shape, or form.
An Early Look at the IRS Letter
Those who already received the letter are familiar with its contents, but for those who will soon find it in their mail as the IRS digs its heels in, it’s good to get a preview of Letter 6174 and Letter 6173—both entit...