Tax pros brace for ‘tidal wave’ of crypto tax scrutiny from the IRS. What investors need to know

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As the IRS bolsters its cryptocurrency expertise, tax professionals are bracing for increased scrutiny of digital currency. Digital assets are one of the agency's "priority areas," according to a press release sent last week. The IRS announced it hired two former crypto executives to beef up its digital currency service, reporting, compliance and enforcement programs. "Everybody's been waiting for the tidal wave of this enforcement activity," said James Creech, an attorney and senior manager at accounting firm Baker Tilly. More from Personal Finance: IRS targets wealthy 'non-filers' with new wave of compliance letters 4 red flags for an IRS tax audit — and how to avoid the 'audit lottery' IRS aims to close 'inequity gap' for unpaid taxes. How it targets top earners for audit With billions of funding enacted via the Inflation Reduction Act, the IRS has focused on reversing historically low audit rates of higher earners, corporations and complex partnerships. There has also been a rise in digital currency tax investigations from the agency's crime unit, including unreported capital gains, mining and other income, according to the division's 2023 annual report. Eric Hylton, national director of compliance for Alliantgroup, also expects a rise in civil cases prompted by a "John Doe summons," where the IRS requires companies to turn over crypto transaction data over a certain threshold. These actions will trigger a "significant amount" of crypto enforcement, said Hylton, who is a former IRS commissioner for the agency's small business and self-employed division.