IRS may put cryptocurrency question at the top of 1040 to catch cheaters

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The Internal Revenue Service is considering adding a question to Form 1040-America's primary income tax form-asking tax filers if they dealt in virtual currency in 2020. It would be the agency's latest attempt to crack down on underreporting of cryptocurrency profits.

If an American buys bitcoin, ether, or another cryptocurrency and then sells it later at a profit, she or he will typically owe capital gains tax on the difference. But blockchains do not have the tax reporting infrastructure that has become standard for conventional financial institutions. So the IRS doesn't have an easy way to figure out who has received a cryptocurrency windfall. In the early years of the bitcoin boom, many taxpayers failed to report large bitcoin-related profits.

In recent years, the IRS has increased pressure on cryptocurrency traders to comply with tax laws. A 2014 bulletin laid out the basic rules for paying taxes on virtual currency price gains. In 2016, the IRS sought transaction data about thousands of users of Coinbase, a popular US-based cryptocurrency exchange. Coinbase complied with the request in 2018 after some legal wrangling.

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