IRS Issues 758% More Crypto Tax Letters Amid Tightening Regulations

The Internal Revenue Service (IRS) has significantly ramped up its enforcement efforts in the cryptocurrency space, issuing 758% more tax letters to U.S. investors over the past 60 days. This surge in correspondence underscores the agency's heightened scrutiny of digital asset transactions and the impending regulatory changes that will affect how these transactions are reported.

The increased number of letters has sparked concern among investors, who are now urged to review their records promptly to ensure accuracy in their tax reporting. The IRS's actions reflect a broader trend of intensified enforcement, which has prompted many investors to reassess their compliance strategies. The upcoming implementation of new 1099-DA rules by January 2026 will further tighten reporting requirements, adding to the complexity of the regulatory landscape.

Investors, particularly those dealing in popular cryptocurrencies like Bitcoin and Ethereum, are facing renewed audit risks. The new tax forms set to be introduced in 2026 will require more detailed reporting, which could alter trading behaviors and increase compliance costs. Firms may need to adjust their operational practices to align with the IRS's focus, potentially leading to changes in how digital assets are managed and reported.

Historically, the IRS has seen increased disclosures following enforcement actions, such as those in 2019. However, a history of underreporting issues complicates the current compliance landscape. Experts predict that the new 1099-DA requirement will give the IRS comprehensive monitoring capabilities, enhancing market transparency but also potentially increasing the burden on taxpayers. David Kemmerer, CEO of CoinLedger, noted that the IRS now has more visibility into crypto transactions than ever before, but without accurate cost basis data, even compliant investors could be mistakenly flagged. He emphasized the importance of organizing records and being proactive about tracking taxable income.