Crypto Tax Attorney | IRS Cryptocurrency Audit and Tax Defense
Cryptocurrency tax problems are on the rise, and to protect yourself, you need experienced legal help. The attorneys at Seattle Legal Services can represent you if you’re facing any crypto-related issues.
Cryptocurrency tax enforcement evolves on a regular basis, thanks to rapid changes in crypto technology and how it’s taxed. The IRS now requires every taxpayer to answer a question about digital asset activity on Form 1040. Additionally, more and more crypto exchanges are expanding their reporting procedures. The IRS can now identify crypto exchanges by cross-matching blockchain tracing tools and data from exchanges, making it easier for the agency to identify discrepancies between taxpayer reports and what has actually occurred.
If you’re concerned about how your crypto transactions were reported and if they match your tax filings, it’s important to be proactive. At Seattle Legal Services, PLLC, we represent clients nationwide in cryptocurrency tax matters. Our team concentrates on IRS enforcement, audit defense, and strategic correction. We’re here to help address crypto issues before they escalate. Call us at 425-428-5262 to discuss your concerns with a tax attorney now.
You’re in the Right Place If…
If you’re dealing with general crypto uncertainty, have received an IRS notice about unreported crypto, or are facing other crypto tax concerns, we’re here to help.
You’re in the right place if:
- You had cryptocurrency activity, but did not report it.
- You answered “no” to the cryptocurrency question on your tax return, but later realized you did have transactions.
- You received a CP2000 notice about a return adjustment related to crypto-based gains.
- Your gains are larger than originally calculated
- You’re being audited or investigated by the IRS.
- You have unreported crypto income.
- You received crypto through staking, mining, or business activity
- You’re concerned about crypto-related penalties
- You have additional exposure due to Washington’s capital gains tax
If any of these apply, the goal isn’t just to fix your return. It’s to assess your risk and protect your position while taking action.
Common Cryptocurrency Tax Issues We Handle
Cryptocurrency tax problems often involve incomplete records, inconsistent reporting, misunderstood tax treatment, or other complexities.
For example, a client may trade crypto across multiple exchanges. They later realize that their cost basis was not tracked properly, leading to an over- or understatement of the gains on their returns. In another case, a client may use crypto to make purchases without realizing that each transaction creates a taxable event.
We regularly help clients across the country address issues like:
- Unreported or underreported gains
- Cost basis reconstruction
- High-volume and day trading exposure
- Discrepancies between filed returns and exchange data
- Income from staking, mining, and business transactions
- IRS audits tied to digital assets
- Penalty exposure and mitigation
Each situation demands a tailored approach based on the specifics of what happened, what steps you took to address the situation, and what the IRS already knows.
How the IRS is Enforcing Cryptocurrency Compliance
The IRS does not rely exclusively on voluntary reporting for tracking cryptocurrency transactions and tax compliance. Enforcement is driven by a number of systems, including:
- Digital asset question on Form 1040
- Third-party reporting to the IRS by exchanges and brokers
- IRS data matching programs
You may not even know a problem exists until you receive a notice from the IRS – and by the time you’re at that stage, the agency may already have a general idea of what happened. At that point, you need an attorney who can proactively evaluate the situation and your exposure.
Our Approach to Crypto Tax Resolution
When clients reach out for help with crypto tax problems, we take steps to understand the full picture. We look at your IRS transcripts, review prior filings, analyze your crypto transaction history, reconstruct cost basis, and get a full understanding of your liability.
From there, we determine the right path forward for your case. Solutions may involve:
- Amending prior returns
- Responding to IRS notices
- Challenging incorrect IRS assumptions and calculations
- Crafting a strategy to reduce or eliminate your penalties
What It Means If You Didn’t Report Cryptocurrency Properly
When evaluating crypto mistakes, it’s important to understand the difference between mistakes and intentional misconduct. Most crypto mistakes are the result of mistakes, not the latter. The rules around cryptocurrency have changed quickly, exchange documentation has been spotty throughout the years, and many people don’t know about changes in crypto taxation.
But once an issue is identified, it is important to respond. We focus on early, well-structured strategies that reduce penalties, clarify misunderstandings, prevent escalations, and limit your exposure.
Cryptocurrency Audits—What You Should Expect
Crypto audits can be very intimidating, but when you have a tax attorney representing you, you can feel confident that you are minimizing your risk and legal exposure.
The IRS conducts several types of audits. Depending on the situation, they may ask for specific documentation via mail, conduct an audit in an IRS office, or go to your location for a field audit.
The usual goal of an audit is to reconcile reported income with the data they have.
With that in mind, we assist by:
- Organizing and presenting transaction records
- Responding to IRS notices and requests
- Identifying and addressing IRS miscalculations
- Explaining your transaction history
- Assisting through appeals if needed
Washington Capital Gains Tax and Crypto
While Washington does not have a traditional income tax, a capital gains tax is charged on some high-value transactions. This is relevant for crypto investors who have long-term gains and large transactions that are reported federally. Typically, investors owe state capital gains tax after disposing of cryptocurrency held for a year or longer if they are domiciled in Washington when the sale or exchange takes place.
This requirement can be very confusing for Washington residents, as they’re not used to filing an annual income tax return like the residents of most other states. But we can help you deal with the DOR.
When to Hire a Crypto Tax Attorney
While not all cryptocurrency issues require legal representation, many situations benefit from it. This is particularly true when you consider the evolving nature of cryptocurrency taxation and the risk of making unintentional errors.
We recommend seeking legal assistance if you’re at high risk of penalties, you are being audited, or the IRS is otherwise involved. Situations where legal assistance can be very helpful include:
- You’ve received a notice or audit request
- You know that your crypto transactions were not reported properly
- You’re struggling to calculate your gains, or you have significant crypto gains
- You don’t know how to respond to the IRS
- You want to correct your past filings without increasing your risk
In simple cases, compliance can be very straightforward. In more complex cases, you may need a more strategic approach.
Why You Should Work With a Crypto Tax Attorney (Instead of Relying on Software or an Accountant)
Software can crunch numbers, and accountants are excellent for preparing returns and managing your finances. But when the IRS is involved (or may become involved), you have to start thinking with your protection in mind. A tax attorney can provide legal privilege for sensitive discussions, strategic guidance before you take action, representation if the matter escalates, and communication with the IRS to minimize your risk.
Why Choose Seattle Legal Services, PLLC
At Seattle Legal Services, PLLC, we understand the complexity surrounding cryptocurrency taxation and how overwhelming it can be for clients. We’ve helped many cryptocurrency investors and business owners who need a structured plan for their tax situation.
Our approach is based on tax law, extensive cryptocurrency experience, and in-depth knowledge regarding the IRS’s expectations and approach to discrepancies. We are based in Seattle but represent clients across the country.
Cryptocurrency issues are often fixable, but your outcome depends heavily on how they are handled. By taking action now and hiring an attorney, you can put yourself in a stronger position to explore potential outcomes, assess your risk, and choose the right path forward for your situation.
The next step is a confidential consultation if you are worried about cryptocurrency reporting or penalties. Call us at 425-428-5262 or contact us online now.
Frequently Asked Questions
What happens if I didn’t report crypto on my tax return?
The IRS can assess additional tax, penalties, and interest. However, by addressing the situation strategically, you may be able to minimize your losses.
Can the IRS track cryptocurrency transactions?
Yes. The IRS uses blockchain analysis, exchange reporting, and data matching systems to identify and address discrepancies.
What are the penalties for failing to report crypto gains?
You may be assessed an accuracy-related penalty, as well as interest on the penalty and the underreported amount.
Should I amend my return before the IRS reaches out to me?
It depends. Amending returns without evaluating your exposure may create additional problems for you.
Am I going to face criminal charges for crypto mistakes?
Most crypto mistakes are addressed civilly, not criminally. Criminal charges are generally reserved for cases involving fraud.
What should I do after receiving a CP2000 notice?
Read the notice in full to evaluate whether or not the IRS’s calculations are accurate. From there, you can decide how to respond.