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An In-Depth Look at a Cryptocurrency Tax Audit

By Alexander Kugelman | June 25, 2020

The BitcoinTaxes Podcast asked crypto tax attorney Alexander Kugelman questions about what to do in the event of an IRS Criminal Investigation (CI) and how the COVID-19 pandemic has effected crypto and taxes.

Alexander Kugelman, a tax controversy lawyer with expertise in cryptocurrency and IRS audits, joined the BitcoinTaxes Podcast for a deep dive into a cryptocurrency tax audit.

Host Salvatore Vescio asked Alexander questions about what to do in the event of an IRS Criminal Investigation (CI) and how the COVID-19 pandemic has effected crypto and taxes.

Listen to the full podcast and read the highlights below.

A Deep Dive Into IRS Crypto Tax Audits

BitcoinTaxes: What Does an IRS Criminal Investigation Look for?

Alex: “CI agents are fairly sophisticated. If they have some information, and they can see these different transfers to different exchanges or wallets – they can piece it together and there’s nothing to stop them from going and getting that data at that point as well. That’s why I think it’s really important that people…try to do the most reasonable good faith effort because it’s hard to make a criminal case out of an accounting error. It’s much easier to make a criminal case when someone’s sold hundreds of thousands of dollars of cryptocurrency and then transferred that fiat into a U.S. bank account.

If a CI agent is showing up at your door regarding cryptocurrency, it means they already have information that they believe there was a crime and that would lead to a conviction of a crime.

There’s always going to be two agents, because one is going to be a witness for this conversation. You just need to remember: decline the interview. There’s nothing wrong with that. Get a card say ‘my counsel will contact you.’ That’s it.

The other thing to keep in mind that’s really important is that you don’t want to start doing things that are new crimes. You don’t want to go in and start destroying records or erasing emails. Taking those kinds of steps is only going to make it worse.”

BitcoinTaxes: Can You Talk About the Coronavirus and the Effect It Has Had on Taxes and Crypto?

Alex: “The IRS is, for the most part, shutdown. That means that they’re not really issuing new audits right now. It also means that the forced collections – when you owe money to the IRS and they levy your bank account or issue liens – that’s not going on right now. So for clients or for taxpayers who owe the IRS money…if they are currently in an installment agreement with the IRS, then actually they can forego those monthly payments right now.

The IRS is already an underfunded agency, and it was affected by the government shutdown recently. There’s really a big backlog to begin with. I mean it’s hard to estimate how much this [virus] is going to affect the administration of tax compliance. But I think it’s a great time to amend a tax return or to get into compliance.”

We can Help with Your Cryptocurrency Tax Compliance

Kugelman Law is a tax law firm experienced with cryptocurrency tax reporting. We have helped hundreds of taxpayers account and report cryptocurrency gains and losses.

Our tax professionals are experienced with recreating missing trading data and dealing with high volume and complex trading activity. Let our team of experienced attorney and tax professionals bring you into compliance, defend you in your audit, or represent you in a criminal investigation.

Contact us today.

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Alexander helped me break down my tax situation and used his expertise to figure out the next actionable steps, make sure that all the bases were covered (that I wasn't aware even existed), and confirm that things were done correctly. If you are confused and stuck in a difficult tax situation, Alexander will guide you forward and help you confidently resolve the issue. Henry Wang
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Alexander helped me understand the IRS audit process and prepared my response. There were certain records that I had lost, but he suggested alternatives that the IRS accepted. Even better, he showed up at the audit for me and I never actually had to talk with the IRS. I didn't have to pay any penalties. I'd definitely recommend hiring Alexander to deal with an IRS issue. L.R.