We know the world of cryptocurrency is an exhilarating place to be right now. It raises unique challenges, particularly when it comes to engaging with critical regulatory agencies such as the IRS. Kwame Nkosi, an astute observer of the blockchain landscape, untangles the muddied waters around IRS crypto seizures, illuminates the online dangers you’re facing, and delivers practical steps you can take to secure your digital assets today.

Understanding IRS Crypto Seizures

As one can see, the IRS is paying more attention to crypto transactions, and these seizures are growing in frequency. Kwame Nkosi reminds us that these seizures are usually driven by a couple of central factors. He stresses the essential need for crypto investors to understand the reasons behind these seizures and how to prevent them from happening to you.

Common Reasons for Crypto Seizures

  • Unreported Transactions: A primary reason for IRS seizures is the failure to report crypto transactions on tax returns. This includes sales, trades, and exchanges.
  • Tax Evasion and Fraud: The IRS actively pursues cases of tax evasion and fraud involving cryptocurrency.
  • Failure to Comply with Tax Notices: Ignoring or failing to respond to IRS notices can lead to asset seizure.
  • Inaccurate or Missing Documentation: Incomplete or incorrect records, such as decimal errors or swapped wallet addresses, can raise red flags.

Valuing Seized Crypto Assets

The IRS determines the value of seized crypto assets by calculating their fair market value in US dollars. We understand that this valuation takes place at the moment of seizure. Per IRS Revenue Ruling 2019-24, if you are paid in cryptocurrency for goods or services, there are tax consequences. The fair market value of the cryptocurrency on the day it is received counts as taxable income. For instance, if someone receives 10 Bitcoin worth $100,000 for services rendered, that $100,000 should be reported as income on their tax return.

Protecting Your Crypto Assets

Here are actionable steps you can take:

Accurate Record-Keeping

Keeping detailed records of every crypto transaction should be priority number one. Kwame Nkosi advises tracking the following data for each sale or disposal:

  • Date sold
  • Token name
  • Quantity sold
  • Price received (in dollars)
  • Transaction fees paid (in dollars)

He recommends establishing a routine—daily, weekly, or monthly—to maintain and balance your transactions to keep everything up to date. Additionally, using designated crypto bookkeeping software like Koinly, Cointracker, Cryptio, Coinbooks, and Integral can greatly simplify inventory tracking and data management.

Compliance and Due Diligence

Make sure you are above board in every sense of the term, complying with every IRS regulation and guideline. In addition, you’re trained to understand the notice and reporting requirements outlined in various IRS publications. This covers guidance documents such as Notice 2014-21, Revenue Ruling 2019-24 and Revenue Procedure 2024-28.

Utilizing Tax Software and Professional Help

Tax software specifically for crypto like ZenLedger can help you accurately report your transactions. Pursuing professional advice from tax experts such as tax attorneys or accountants can be immensely helpful. Find out here how they can make your crypto tax landscape simple to understand.

Security Measures

Secure any crypto transactions and records you have or need to make with strong security practices. These practices can include using strong passwords, two-factor authentication, and encrypted storage to protect against unauthorized access.

Navigating Your Rights

Just like any other investors, crypto investors have due process rights, and they better receive notice before the IRS intercepts their assets. Moreover, there are likely exemptions and deductions one can take for certain crypto transactions.

Seeking Professional Representation

If you do end up having to contend with an IRS audit or seizure, getting the right professional representation can make all the difference. A qualified tax attorney or accountant can help explain what you are entitled to. They’ll walk you through the entire legal process and help keep you on the IRS’s good side.

Maintain good documentation and be in the know to outpace the competition. When unsure, consult expert advice to reduce the likelihood of IRS confiscation and safeguard your cryptocurrency.