Last Updated: August 19, 2022
The Inflation Reduction Act (IRA) was signed into law on August 16th, making US taxpayers earning over $400,000 a year with crypto assets more susceptible to audits in the next decade. The act has allocated $80 billion to the IRS over a 10-year period to strengthen its enforcement efforts. These enforcement actions are projected to bring in $204 billion in revenue to the IRS by 2031.
IRS Funding Breakdown
The IRS is planning to allocate the funds for over six core functions as presented below:
Notably, the enforcement function is allocated the largest amount of funds. These funds will be used “to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes, to purchase and hire passenger motor vehicles.” (Inflation Reduction Act, Pg. 37)
How does the Inflation Reduction Act Impact Crypto Taxpayers?
Many crypto taxpayers are concerned about being subject to more audits as a result of this bill. Clearly, households making over $400,000 a year with digital asset exposure could be subject to more audits in the coming years than previously.
However, it should be highlighted that IRS enforcement actions are not meant to target households making less than $400,000. In a recent letter to congress, the IRS commissioner, Charles Rettig stressed that “These resources [$80 billion] are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans”.
That said, opponents of the bill argue that even low to middle-income households may also see heightened overall audit rates in the next coming years.
Given the long-lasting impact of this bill, it is prudent for crypto users to keep accurately filing taxes. If you haven’t correctly reported crypto activity in past years, this is a good time to consult with a qualified tax adviser and evaluate your options.
If you have any questions or comments about crypto taxes let us know on Twitter @CoinTracker.
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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.