That’s about to change, as the Internal Revenue Service (IRS) significantly increases the enforcement of cryptocurrency investments. This action provides a powerful signal to investors on the importance of correct tax disclosure. This year, we have data that indicates a historic spike in these warning letters. Its distribution has increased an eye-popping 758% versus this same week last year. This increased focus is raising alarm and fueling a wave of confusion among crypto investors looking for more information and direction.

The IRS’s enhanced enforcement actions further demonstrate its willingness and determination to protect lawful behavior and compliance in this fast moving digital asset environment. If you’ve bought and sold crypto, report your gains and losses correctly. Doing this will simply keep you out of harm’s way from expensive penalties and increased tax administrator scrutiny.

Increased IRS Scrutiny

The IRS’s intensified enforcement is clearly seen in the drastic increase in educational notice letters sent to taxpayers. This large jump is a clear signal of the agency’s increasing interest in finding and combatting potential discrepancies in crypto tax reporting.

CoinLedger, a cryptocurrency tax software platform, recently announced a 900% spike in support inquiries related to IRS letters. This increase happened during the height of the transit expansion—in the peak months of May and June. David Kemmerer, the Cofounder and CEO of CoinLedger, recently commented on the surge of IRS letters. He sees this increase as evidence that the agency is adopting a more aggressive posture toward tracking down crypto-related tax obligations.

The letters act as a preemptive measure, encouraging taxpayers who may not have filed correctly to proactively examine their filings and amend as needed. Investors who receive these notices should take them seriously and promptly address any issues to mitigate potential risks.

Impact on Crypto Investors

Given the IRS’s increased enforcement efforts, which are rightly alarming many crypto investors, it’s important to clarify what this announcement means. The difficulty of crypto tax regulations that are sometimes unclear and often evolve with the fast-paced digital asset world may make it difficult to report accurately.

Unfortunately, many investors are not familiar with the rules that apply to crypto transactions. Instead, they tend to incur accidental errors or omissions on their tax returning that create liability. The increase in IRS notices should be a wake-up call for investors. This sense of urgency pushes them to find expert help and utilize resources such as CoinLedger to make sure they stay in compliance.

CoinLedger said that they have seen a 4,000% increase in support tickets. This upswing is indicative of the increasing need for transparency and guidance with all the intricacies involved in crypto tax reporting. Our investors are asking us how to calculate gains and losses accurately, report their transactions and prepare for IRS inquiries, audits and payments.

Navigating the Evolving Landscape

The IRS has increased initiatives focusing on proving crypto tax compliance. Investors must make strategic moves now if they want to be able to pay their future taxes. You have to track all crypto transactions with great detail. Avoid unpleasant surprises by knowing the applicable tax requirements, and consult with tax professionals when appropriate.

Taxpayers need to take the time and attention to go back and review their historic filings and amend them where needed to address any errors or omissions. Be prepared to provide documentation to further support your reporting. This is especially important in the unlikely event of an IRS audit or inquiry.

Tools like CoinLedger can help investors streamline the tax reporting process by automating calculations, generating reports, and providing educational resources. Continue to read and be prepared to act. In doing so, crypto investors will be better prepared to navigate the taxing and regulatory environment as it evolves, thus lowering their exposure to potential penalties or litigations.