Defi Tax Accountant Miami

Whether your audit is because of your crypto, or your investments are merely complicating the process, the objective is to prove that you filed your tax returns correctly and paid the correct amount.

Here’s how the cryptocurrency audit process functions:

• The IRS will request records to support the information on your tax returns. This can include paychecks, bank statements, and receipts for any expenses you claimed.
• For a cryptocurrency audit, you will also need a detailed report of your trading history for the applicable years.
• The audit examiner’s primary goal is to verify whether you reported correctly and paid the right amount in taxes.
• At the conclusion of your audit, they will assess the amount owed. Collections won’t start promptly, and you do have the option to appeal. 
• If, during your crypto audit, the IRS finds reason to believe you intentionally tried to hide funds or otherwise commit a tax crime, they may refer the case to the Criminal Investigations Division or the Department of Justice for criminal prosecution.

Common triggers for a cryptocurrency audit include:

• Failing to report crypto on your tax return
• Omitting certain exchanges or wallets from your return
• Miscalculating your capital gains or ordinary income

Many digital asset exchanges report some information about your activity to the IRS. If your tax return doesn’t match, you could get flagged. This is true even if you lost money or made minimal gains.

Once the IRS starts receiving Form 1099-DA from crypto exchanges, we anticipate that cryptocurrency audits will soar.

A standard audit covers your last 3 years of tax returns. However, during the audit process, if the IRS finds reason to believe you’ve underreported by at least 25%, they can go back 6 years.

If you’ve held crypto for several years and haven’t consistently reported it properly, there’s a good chance of this happening to you.

For instance, let’s say you’re undergoing a crypto audit covering the years of 2017, 2018, and 2019. When the IRS examiner reviews your records for 2017, they notice that some coins were sold. They ask when you first acquired those coins, and you inform them you bought the coins in 2014. 

If you didn’t report any cryptocurrency before 2017, the IRS examiner may now suspect that you’ve significantly underreported your taxable income. The years of 2014, 2015, and 2016 may then be opened up to an audit, as well.

If the IRS believes you’ve committed tax fraud, there is no statute of limitations for the audit. They can go back as far as they want in that case.

As we discussed earlier, most IRS examiners are unfamiliar with what Bitcoin is—let alone how it should be reported. You need a tax lawyer on your side who:

• Understands how to navigate the audit process
• Can build an accurate crypto tax report (even if you've lost keys or used a now-defunct exchange)
• Knows digital asset tax law thoroughly to defend your reporting methods

A crypto tax report is a detailed accounting of every single trade—including timestamps of when you bought and sold, the initial amount you spent on the coin, and how much you sold it for. This information is used to calculate your capital gain or loss for each transaction. 

There are other factors to consider, too: Long-term gains and short-term gains are taxed at different rates. Some crypto is attributed as income and must be reported separately. 

Assembling a proper crypto tax report can be a painstaking, time-consuming process. Do not assume the IRS will do the work to calculate the correct amount owed for you!

We've helped hundreds of clients create crypto tax reports for past years, even if they don’t have complete records or have lost access to old wallets. We know the law inside and out, so we can create crypto tax reports that withstand the most rigorous IRS scrutiny.

Many of our crypto clients haven’t reported because they’re worried they won’t be able to pay the taxes they owe on crypto gains.

What most people don’t realize is that the audit process is solely concerned with calculating the amount you owe. You do not need to pay your full tax bill immediately after the cryptocurrency audit is complete. 

You can establish a payment plan with the IRS. There’s almost always a payment plan or resolution option that satisfies both our clients and the IRS.

You can even appeal your crypto audit results! Our tax attorneys are licensed in US Tax Court, so we can appeal your audit decision to the highest levels.