This has been a very active area at the IRS. We have seen crypto audits that are currently ongoing and receive calls from taxpayers just beginning these audits or seeking review of their prior tax filings. It’s complicated and taxpayer records vary significantly. Also, CPA firms may not have a strong background in this area as it is relatively new, even large, sophisticated firms. There are a lot of legal issues that may arise in accurate reporting and we have seen some problematic tax filings, even if not intentional.
Specifically, the IRS announced some new things last week that we are watching. The IRS announced that it is investing heavily in block chain analysis tools for their employees and there will be new forms like 1099-DA. Crypto transactions will create audit risk or flags on returns that are pulled. On the criminal side, CID has 390 cases right now, but many more civil cases are pending and these audits will be increasing.
The IRS issued 600 plus licenses for block chain analysis tools for its employees and is undergoing training to get its employees up to speed. The newest strategic plan will target these cases and the new tax disclosure forms will assist the IRS in identifying these issues on tax filings. The IRS estimates that there are 12.6 million under-reported crypto transactions, but it is likely that there are much more, as it is complicated and we have seen mainstream CPA firms that are not completely and accurately addressing the issues on the tax filings that are required.
Earlier this week the IRS provided an update on the ERC processing moratorium. The announcement stated that the moratorium will continue. For filings submitted before September 14, 2023, up to 20 percent of high-risk claims (those that appear not to meet eligibility standards) will be disallowed, while up to 20 percent of low-risk claims will be approved for refunds. As for the majority of pending claims, the IRS indicated that additional analysis will be conducted to enhance their compliance review-a familiar refrain. No claims submitted during the moratorium period will be processed, with priority given to the oldest claims first.
An IRS announcement this week regarding the processing of ERC claims, making it clear that the IRS intends to deny a majority of the pending refund claims. Additionally, it is evident that the IRS will allocate significant resources to scrutinize the promoters of ERC credits. Consequently, Congress has been asked to increase the current promoter penalty from 50% to 200% of gross income. All consultants who assisted taxpayers should take note of this development and proactively formulate a litigation defense strategy in anticipation of potential investigations by the IRS and DOJ.
The IRS recently began its first solely crypto fraud criminal case. To date, our office has seen civil tax audits in this area. Prior to this time, criminal charges were connected with other criminal investigation issues such as money-laundering. The charge is based on the failure to report proceeds. The IRS stated "it was the first time someone was charged with solely failing to report or underreporting cryptocurrency earnings and gains on their tax filings.