Dallas Crypto Tax Law

Whether your audit stems from cryptocurrency, or your investments are merely complicating things, the aim is to confirm that your tax returns were correctly filed and the appropriate tax paid.

Here's how the cryptocurrency audit process unfolds:

• The IRS will request records to support the data on your tax returns. This may include paychecks, bank statements, and receipts for any claimed expenses.
• For a cryptocurrency audit, you will also require a detailed breakdown of your trading activity for the years in question.
• The audit examiner’s main objective is to verify whether you reported accurately and paid the correct tax amount.
• Upon concluding your audit, they will determine the amount due. Collections won't commence immediately, and you can appeal. 
• If, during your crypto audit, the IRS finds indications of intentional fund concealment or a tax offense, they may advance the case to the Criminal Investigations Division or the Department of Justice for criminal prosecution.

Frequent triggers for a cryptocurrency audit include:

• Failure to report crypto on your tax filing
• Excluding certain exchanges or wallets from your return
• Incorrect calculation of your capital gains or ordinary income

Many digital asset exchanges report some elements of your activity to the IRS. If your tax filing doesn't align, you could be flagged. This is applicable even if you incurred losses or gained minimally.

With the IRS starting to receive Form 1099-DA from crypto exchanges, we anticipate a rise in cryptocurrency audits.

A typical audit covers your last 3 years of tax filings. However, if the IRS uncovers a 25% underreporting, they can review up to 6 years back.

If you've held crypto for several years and haven't consistently reported it, this may likely occur.

For example, suppose you're undergoing a crypto audit covering 2017, 2018, and 2019. If the IRS examiner notices coins sold in 2017, they may inquire when you initially bought them, revealing a 2014 acquisition. 

If no cryptocurrency reporting occurred before 2017, the IRS examiner may suspect significant underreporting of taxable income, prompting audits for 2014, 2015, and 2016 as well.

If the IRS suspects tax fraud, there's no statute of limitations on the audit. They can investigate as far back as necessary.

As mentioned earlier, many IRS examiners aren't familiar with Bitcoin at all—let alone its reporting requirements. You need a tax attorney who:

• Understands the audit process
• Can accurately construct a crypto tax report (even in cases of lost keys or defunct exchanges)
• Expertly defends your reporting methodology in line with digital asset tax law

A crypto tax report is a detailed breakdown of every transaction—including timestamps for buy/sell timings, initial spending on the coin, and selling price. This data calculates your capital gain or loss per transaction. 

There are additional considerations: Long-term and short-term gains are taxed at differing rates, some crypto is classified as income necessitating separate reporting. 

Formulating a correct crypto tax report can be tedious and time-intensive. Do not expect the IRS to accurately compute the amount you owe!

We have assisted many clients in producing crypto tax reports for prior years, even without complete records or losing old wallets. Our expertise in the law ensures our crypto tax reports withstand rigorous IRS scrutiny.

Many of our crypto clients haven’t reported due to the fear of inability to pay taxes on crypto profits.

What most individuals don't realize is the audit phase only determines the owed amount. There's no requirement to immediately pay your entire tax bill post-crypto audit completion. 

You can arrange a payment plan with the IRS. Our clients almost always find a repayment option that suits their situation and satisfies the IRS.

You even possess the right to appeal your crypto audit outcomes! As our tax attorneys are authorized in US Tax Court, we can escalate your audit appeal to the highest authorities.