Cryptocurrency has only gotten more and more popular over the years, but it remains largely unregulated. In 2023, the IRS hopes to partner with crypto companies to improve its supervision of digital currencies and reduce financial crimes.
A recent interview with Thomas Fattorusso, a special agent who oversees the IRS’s law enforcement arm, details this potential partnership. Here’s what you need to know about the IRS partnering with cryptocurrency.
Cryptocurrency and the IRS: Current Standings
According to Fattorusso, the IRS is always working toward better cooperation and partnership with cryptocurrency. Historically, this partnership has been somewhat hostile or contentious.
The IRS seeks a symbiotic relationship with crypto companies that helps cryptocurrency appear more legitimate and provides more standardization within the tax reporting industry. As Fattorusso notes, cryptocurrency and other digital currencies aren’t going anywhere anytime soon and are only becoming “more legitimate as the years roll on.”
How the IRS Will Proceed with Cryptocurrency Involvement
The IRS plans to take a few measures in 2023 to improve its relationship with the crypto industry, simplify tax reporting for crypto investors, and combat financial crimes. Here’s more about the IRS partnering with cryptocurrency in 2023:
The IRS plans to hire hundreds of new agents in 2023 to work directly with digital assets and cybercrime. These new agents come in the wave of more than 87,000 new hires across the IRS’s various agencies.
Crypto and cybercrime agents will focus on digital asset monitoring and compliance instead of more general tax law enforcement. The IRS hopes that designating experienced individuals to these roles can provide more regulation and standardization in the upcoming tax season.
New Tax Reporting Guidelines
The IRS also plans to initiate new tax reporting guidelines for crypto investors that could simplify their tax returns. This 2023 law may require crypto exchanges and brokerages to report customer information to the IRS directly rather than placing the full reporting responsibility on their investors.
A Seamless Transition for Employees
In his interview, Fattorusso states that he expects some employees to transition from IRS departments to private cryptocurrency companies, then back to the IRS in a mutually beneficial, seamless relationship. Creating a friendly exchange of employees between both industries could produce an open flow of dialogue that has previously failed to exist.
What Taxpayers Need to Know
The partnership of the IRS law enforcement division with cryptocurrency experts won’t affect the average taxpayer much. However, as crypto expands, more investors become involved with this digital currency each year. Taxpayers must understand crypto tax reporting guidelines to prevent IRS penalties.
If you invest in crypto, here are a few tax guidelines you should understand:
- Digital assets are treated as property for tax purposes.
- Selling, trading, and disposing of cryptocurrency are all taxable events.
- Crypto is subject to capital gains and losses.
- Holding crypto for less than one year before spending or selling it subjects any profits to short-term capital gains, taxed at your regular income rate.
- Holding crypto for longer than one year before spending or selling it subjects profits to long-term capital gains tax rates.
- Cryptocurrency mining is also considered taxable income.
- Receiving cryptocurrency in exchange for goods or services is considered taxable income.
The IRS partnering with cryptocurrency companies and hiring more crypto experts this year will only make crypto tax guidelines more strict. You must ensure that you report your crypto transactions correctly and pay the necessary taxes to remain compliant.
Need help reporting cryptocurrency on your tax returns? Reach out to our tax consultants at Levy & Associates for assistance. Call us at 800-TAX-LEVY today.