Tax Hysteria Over Cryptocurrencies Likely Overblown, IRS Audits Drop to Lowest Level in Decades

Hysteria over the IRS hammer coming down on cryptocurrency traders may be overblown after recent reports indicate that the tax agency is a shell of its former shelf. The Wall Street Journal finds that audits plummeted to only 0.45% of all personal income tax returns in 2019, the lowest level in at least four decades. This marks the eighth straight year of decline which has accelerated under President Trump’s administration. Currently, the IRS has fewer auditors than at any point since World War II. This comes after a tumultuous year for cryptocurrency traders dealing with the stress of audits. This summer, the IRS sent up some 10,000 letters to individuals requesting they clarify whether they received, sent, or exchange any cryptocurrency since 2013. Then, in October, BeInCrypto reported that a source from the IRS confirmed that a “new batch of audit notices” would be sent out shortly. There was no follow-up to this notice, however, and it’s unclear how many individuals were audited if any.   The IRS announcements led to widespread fear of a crackdown on cryptocurrency traders and holders. However, it’s increasingly becoming clear that the IRS lacks the kind of muscle it possessed a decade ago. The agency’s funding and staff has only continued to decline under President Trump’s administration. In November, BeInCrypto reported that the IRS was missing the funds necessary to update its existing tax code, let alone create a new standard for cryptocurrencies. Still, cryptocurrency traders shouldn’t interpret this as a sign that they can skip out on their tax responsibilities. The IRS will likely continue to monitor the cryptocurrency industry, especially large holders and traders. Although the IRS won’t be knocking on every cryptocurrency trader’s door, we can be sure that a cryptocurrency tax plan will eventually be released—although that may take years to actually reach fruition.