Not So Cryptic: IRS Increases Oversight On Cryptocurrency Income Tax Reporting Requirements

Highlights

• In 2025, the IRS will begin increasing its oversight of cryptocurrency transactions by requiring brokers to report investor sales and exchanges tied to such transactions.
• Taxpayers not complying with these requirements may face penalties based on accuracy of reporting, meaning they should maintain detailed records – including date, U.S. dollar value and purpose – for all cryptocurrency transactions.
• For federal tax purposes, any form of virtual currency is treated as property and not cash.

Cryptocurrency has revolutionized the financial markets but also created tax traps for the unwary investor. Building on proposed regulations issued last year, the IRS recently increased its oversight of cryptocurrency transactions by requiring brokers, beginning in 2025, to report investor sales and exchanges in connection with such transactions.