The Internal Revenue Service (IRS) of the U.S. has notably increased its scrutiny of cryptocurrency activities, sending out significantly more tax obligation warnings to investors in 2023.
Increase in IRS Warnings
The IRS has sent 758% more crypto tax warnings this year compared to last year. This indicates a stricter approach to compliance with tax laws, which may affect market behavior. Such an increase signifies heightened attention to cryptocurrency assets and the necessity for more precise reporting.
Investor and Legal Advisor Reactions
Legal and tax professionals have noted a surge in requests for assistance in compliance matters. According to David Kemmerer, co-founder and CEO of CoinLedger, the number of inquiries mentioning 'IRS letters' increased ninefold in the period from May through June 2023 compared to the same period in 2022.
Potential Market Outcomes
Historically, heightened IRS scrutiny often leads to conservative market activity as investors reassess their tax strategies. Actions taken by the IRS in 2020 and 2021 resulted in temporary slowdowns in the market while investors adjusted to new requirements. The potential outcomes from the current IRS initiatives remain unpredictable, possibly resulting in improved tax compliance or an increase in anonymous transactions.
The shifting IRS policies regarding cryptocurrencies highlight the importance of tax compliance and create a demand for legal consultations in this area. Investors should closely monitor changes in tax policy and prepare for new challenges.
