How the IRS Tracks Crypto in 2024 (2024)

Is crypto trackable?

Yes, cryptocurrency transactions are trackable, which is a key feature of blockchain technology. While transactions are pseudonymous, meaning they are not directly tied to a person's identity, the blockchain records all transactions. Each transaction includes the sender and receiver's wallet addresses, transaction amount, and timestamp.

This information is public and can be viewed by anyone with a blockchain explorer. However, identifying the individuals behind these addresses requires additional information or tools.

Can the IRS track crypto? The short answer is: yes, and it’s best to assume the IRS has complete transparency into your crypto transactions and to proceed accordingly, or risk a crypto tax audit.

How is crypto traceable?

Cryptocurrency transactions are traceable because they are recorded on a public ledger called the blockchain. The blockchain is a decentralized ledger that records all transactions across a network of computers. Network nodes verify each transaction through cryptography and record them in blocks that are added to the blockchain.

Crypto transactions are traceable because each transaction is linked to the previous one through a unique digital signature. This creates a chain of transactions that can be traced back to the original source.

While cryptocurrency transactions are anonymous, which means they don't reveal the identities of the parties involved, forensic analysis and blockchain analysis can be used to trace transactions back to specific individuals. Crypto exchanges typically also require a KYC (know-your-client) process that forces users to provide identification in order to on- and off-ramp fiat into crypto.

How does the IRS track crypto?

The IRS tracks cryptocurrency transactions through a variety of methods, including:

Blockchain Analysis Tools: The IRS uses specialized software to analyze the blockchain and trace cryptocurrency transactions back to their source. These tools can identify patterns and trace transactions through multiple addresses.
Subpoenas and Summonses: The IRS can issue subpoenas and summonses to cryptocurrency exchanges and service providers to obtain information about their users' transactions.
See Also
Cost Basis Methods: How to Calculate Crypto Gains [UK]Tax Day 2024: When are taxes due?Crypto Tax Forms Strategies to Avoid Crypto Taxes: Expert-Approved 2024
Data Matching: The IRS compares information reported on tax returns with information obtained from other sources, such as cryptocurrency exchanges and third-party service providers, to identify discrepancies.
Whistleblower Reports: The IRS has a whistleblower program that incentivizes individuals to report tax evasion. Whistleblowers who provide credible information that leads to the collection of taxes, penalties, and interest may be eligible for a reward.

Which crypto exchanges report to the IRS?

Several popular crypto exchanges are known to report user transactions to the IRS, in certain circ*mstances. These exchanges include:

Binance.US
Bitstamp
Bittrex
Coinbase
Gemini
Kraken

Typical reports to the IRS can include forms 1099-MISC for US traders earning over $600 from crypto rewards or staking in a given tax year.

And which don’t?

Some cryptocurrency exchanges do not report user transactions to the IRS, including:

Decentralized crypto exchanges (DEXs) like Uniswap and SushiSwap
Some peer-to-peer (P2P) platforms
Exchanges based outside the US that do not have a reporting obligation under US tax law
No KYC crypto exchanges

Regardless of whether an exchange reports to the IRS, US taxpayers are required to report crypto transactions, and it’s best to assume the IRS has full transparency into your crypto activity. When in doubt, consult with a crypto tax professional like ours at TokenTax for clarity and guidance.

When do crypto exchanges report to the IRS?

Cryptocurrency exchanges are required to report user transactions to the IRS under certain conditions, such as:

When a user buys or sells crypto on the exchange
When a user transfers cryptocurrency into or out of their exchange account
When a user engages in cryptocurrency trading activities that result in a gain or loss

Exchanges typically report these transactions to the IRS using Form 1099-B or Form 1099-K.

Wallet address tracing in 2024

Wallet address tracing in 2024 continues to be a complex process, involving advanced blockchain analysis tools and techniques. While cryptocurrency transactions are pseudonymous, meaning they are not directly tied to a person's identity, blockchain analysis can trace transactions back to specific individuals. This is done by analyzing patterns in the blockchain and linking transactions to specific wallet addresses.

Always assume your tax authority has full transparency into your crypto transactions, and be sure to follow local rules and regulations around crypto taxes.

Penalties if I did not report crypto to the IRS

Failure to report cryptocurrency transactions to the IRS can result in penalties and fines. The IRS considers crypto to be property, not currency, for tax purposes. This means capital gains and losses from cryptocurrency transactions are subject to tax reporting requirements and corresponding tax rates for cryptocurrency.

If you fail to report your cryptocurrency transactions accurately, you may be subject to penalties and fines for tax evasion.

How the IRS tracks crypto FAQs

Here are answers to frequently asked questions around topics including: how does the IRS track crypto, and can the IRS track crypto?

How does the government know when you sell crypto?

Governments can track cryptocurrency transactions through the blockchain, which records all transactions. By analyzing the blockchain, governments can trace transactions back to specific wallet addresses and identify individuals involved in crypto transactions.

What crypto app does not report to the IRS?

Certain cryptocurrency exchanges and apps do not report user transactions to the IRS. These include decentralized exchanges (DEXs) and peer-to-peer (P2P) platforms that do not have reporting obligations under US tax law.

Will the IRS know if I don't report crypto?

The IRS has various methods for tracking cryptocurrency transactions, including blockchain analysis tools, subpoenas, and data matching. If you fail to report your cryptocurrency transactions, there is a risk that the IRS will discover the discrepancy and take enforcement action against you.

FAQs

How the IRS Tracks Crypto in 2024? ›

The IRS tracks cryptocurrency transactions through a variety of methods, including: Blockchain Analysis Tools: The IRS uses specialized software to analyze the blockchain and trace cryptocurrency transactions back to their source. These tools can identify patterns and trace transactions through multiple addresses.

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How does the IRS keep track of crypto? ›

Yes, Bitcoin and other cryptocurrencies can be traced. Transactions are recorded on a public ledger, making them accessible to anyone, including government agencies. Centralized exchanges provide customer data, such as wallet addresses and personal information, to the IRS.

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What happens to crypto in 2024? ›

Bitcoin's fourth halving took place on April 19, 2024. The block reward has dropped from 6.25 bitcoin to 3.125. The halvings will continue in approximately four year intervals until all 21 million potential bitcoin have been brought into existence through the block rewards. This is forecast to be the year 2140.

Will the IRS know if I don't report crypto? ›

If, after the deadline to report and any extensions have passed, you still have not properly reported your crypto gains on Form 8938, you can face additional fines and penalties. After an initial failure to file, the IRS will notify any taxpayer who hasn't completed their annual return or reports.

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How does the IRS enforce crypto taxes? ›

The IRS treats cryptocurrencies as property for tax purposes, which means: You pay taxes on cryptocurrency if you sell or use your crypto in a transaction, and it is worth more than it was when you purchased it. This is because you trigger capital gains or losses if its market value has changed.

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What triggers IRS audit crypto? ›

Crypto audit triggers include failure to accurately report transactions and income, large transactions or significant gains, inconsistencies or discrepancies in reporting, use of privacy-focused coins, and participation in offshore exchanges.

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Can the IRS see my Coinbase wallet? ›

Under some circ*mstances, Coinbase does report to the IRS, but that doesn't imply the individual taxpayer is not responsible for reporting. Coinbase's reports to the IRS can include forms 1099-MISC for US traders earning over $600 from crypto rewards or staking in a given tax year.

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Which crypto will boom in 2024? ›

Which crypto will boom in 2024? Cryptos that could boom in 2024 include SingularityNET and Fetch.ai, both of which may capitalize on AI's popularity. Bitcoin is another crypto that could be poised for a strong performance in 2024, thanks to the SEC's approval of Bitcoin ETFs.

What happens if you forget to declare crypto on your taxes? ›

If you forget to report crypto on your taxes, it's crucial to address it promptly. The IRS has intensified its focus on crypto tax enforcement, and failure to report may result in penalties, interest, and even criminal charges. You can amend your returns using Form 1040-X to rectify omissions.