TIGTA Releases Report Regarding Virtual Currency Tax Compliance Enforcement and How it Can Be Improved

According to the Treasury Inspector General for Tax Administration (TIGTA) report, Virtual currency (or digital assets) has grown into a trillion-dollar industry that's been challenging for the IRS to enforce for tax compliance. 

TIGTA's Him himlatest report looks at the agency's efforts to identify income earned from virtual currency transactions. 

Between April 2020 and July 2023, the number of virtual currencies grew 420 percent. The anonymity of virtual currency and the fact that trading platforms don't consistently give reports to the IRS on virtual currency transactions complicates enforcement efforts. 

IRS Criminal Investigation has taken advantage of analytics tools to address virtual currency noncompliance. 

During Fiscal Years 2018 To 2023, They Investigated 390
Cases Involving Virtual Currency/Digital Assets, And
224 Were Recommended For Prosecution.

The IRS established “Operation Hidden Treasure” to identify taxpayers who omit digital assets from their tax returns. However, TIGTA found it's been limited to the acquisition of tools and training, rather than pursuing taxpayers. 

The project's charter did not include any specific enforcement deliverables pertaining to either criminal investigation or civil examination results and success statements identifying what it sought to achieve.

Passage of the Infrastructure Investment and Jobs Act in November 2021, requires brokers to file an information return for digital assets transactions in a calendar year. In response, the IRS created a new information form to report the information needed to calculate gains (or losses) on transactions. While the Infrastructure Investment and Jobs Act was effective for transactions after January 1, 2023, the proposed regulations are effective for transactions after January 1, 2025, for gross proceeds reporting and January 1, 2026, for basis reporting. The proposed two-year implementation delay will hinder efforts to regulate the digital asset industry and may result in lost revenue and taxpayer burden.

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