Does the Federal IRS Know I Am Into Cryptocurrency?

By: TSPadmin

The IRS or the Internal Revenue System is the sole tax collecting and tax law enforcement agency of the United States of America. Falling under the mantle of the Department of Treasury, the IRS was created January of 1862.

The majority of the workload for this agency concerns about income taxes that cover all sectors, public and private, all types of businesses, and, of course, individuals. With that span of coverage, the agency was able to collect gross tax of $3.5 trillion for 2019, the biggest so far.

It is expected to go even higher in the coming years with the implementation of a relatively new taxation on virtual currency. Though it was initially announced through a guidance in 2014, it rippled resoundingly with confusion.

The IRS did not falter a bit with their new target and ironed out all issues of confusion and dug deeper into every situation and mechanics of cryptocurrency in particular, and virtual currency in general.

The Taxpayers

On the side of the taxpayers, this will be an added burden in filing their returns but for a good cause and be a good law abiding citizen. 

There are others out there, however, that will not report their crypto activities believing that the cryptography in their exchange hides them perfectly but knows fully well they run a major risk in the years that follow.

This would lead to a series of questions. Does the IRS know who is holding cryptocurrency? Is the cryptography of the exchange compromised?  

How the IRS Knows You Have Crypto

The tax agency is heavily reliant on tax compliance by every applicable parties on a voluntary basis. This means that the agency expects all, individuals and businesses alike, to report all activities in a given year that are taxable.

The same voluntary reporting goes for virtual currencies. But if there ever is a discrepancy in your report and the information the agency has gathered, hefty penalties abound. How did they get to know you have crypto?

They are the government. They don’t have to crack open the thick layer of cryptography of your exchange. They have the courts to force someone or something to appear or answer; they have the encompassing laws for all to follow.

Schedule 1 of Form 1040

With the year 2020 as the start, there will now be an additional row to the form which will ask the taxpayer of any involvement with virtual currency. Clearly this will create awareness on the taxpayer and be more compliant.

1099-K & 1099-B

For the heavy players, these two forms will have to be filled up by the crypto user where one copy ends up with the IRS and the taxpayers identity is stored digitally. These were required upon all exchanges by the IRS for taxation purposes.


Several crypto exchanges had been served subpoenas in the past years to reveal some curious accounts. Sometimes, a subpoena may result in an exchange’s divulgence of not just one account but several. And there are not that many crypto exchanges in the United States. 


Complex and frustrating, or lost receipts? It is better to hand over the tax return to the professionals like Tax Act. They know the job and they can find a way out of the mess.

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