What To Expect From IRS Cryptocurrency Audit

What-To-Expect-From--IRS-Cryptocurrency-Audit, CPA Northern Virginia

IRS and Cryptocurrency Audits

The IRS is focusing on cryptocurrency transactions in its audits. As a general rule, an audit will be conducted by an IRS auditor in conjunction with a specialist (usually out of another office) whose focus is solely on cryptocurrency.

The auditor will likely ask for an interview with the taxpayer (lately these are done over the phone) with both the auditor and the cryptocurrency expert present.

Either before or after that interview, there will be “Information Document Requests” or “IDRs” issued asking for specific items, depending on what is reported on the tax return.

Items that might be requested are:

  • Copies of all bank statements for the year in question;
  • Unaltered .csv files of all transactions (sometimes requesting these items since inception);
  • Emails, screen prints, hardcopy prints and transactions receipts;
  • Wire transfer or direct deposit records, including ACH and EFT records;
  • Lists of all virtual currency kiosk locations and copies of receipts or acknowledgments;
  • Lists of cryptocurrency transactions involving cash and the cryptocurrency involved;
  • Correspondence of any type with all counterparties;
  • Listing all currencies received from hardforks, faucets, tipping, or other method;
  • Explanation of method used to compute basis
  • Records reflecting valuation of any sale or other disposition.

The list is almost endless of the information they require, and some of which they ask for in electronic format.