Facing an IRS crypto audit or a state investigation? As a cryptocurrency tax attorney, I push back, hard — and I know how these agencies operate.
An IRS crypto audit is not an ordinary tax audit. The agency now receives broker reporting on Form 1099-DA, issues John Doe summonses to major exchanges, and uses blockchain analytics to connect wallet activity to taxpayers — so examinations increasingly open from a documented mismatch rather than a guess. The wrong response, or no response, can turn a manageable issue into accuracy-related penalties and a far larger liability.
As a cryptocurrency tax attorney with an LL.M. in taxation and admission to the U.S. Tax Court, I represent individuals and companies in crypto tax controversy: IRS audits, state investigations, and licensing inquiries. I know what these agencies look for, how they build a case, and how to resolve matters on the best defensible footing.
What triggers a cryptocurrency tax audit
The IRS has treated cryptocurrency as property since Notice 2014-21, so most dispositions — sales, crypto-to-crypto swaps, and spending crypto on goods or services — are taxable events. Audits commonly open from a mismatch: a 1099 that does not reconcile with the return, the Form 1040 digital-asset question answered 'no' against exchange records that say otherwise, large or frequent disposals, prior years with no reporting, or chain analysis linking a wallet to a taxpayer. The 1099-DA reporting regime, phasing in from 2025, gives the agency a stream of third-party data to compare against what taxpayers file.
Once an examination opens, the central fight is usually basis and characterization. Where adequate identification of the disposed units is missing, the default is generally FIFO, which in a long-held, appreciated position can produce a far larger gain than the taxpayer expected. Reconstructing that history credibly, account by account, is often the difference between a small adjustment and a large one.
How a cryptocurrency tax attorney defends an audit
Effective defense starts with controlling the record. I respond to the examiner's information document requests deliberately, frame the legal and factual position before assumptions harden, and make sure every taxable event — a sale, a swap, staking rewards, an airdrop, a hard fork — is characterized correctly, because they are not taxed the same way. Where the law is genuinely unsettled, such as the timing of staking income litigated in Jarrett v. United States, a well-supported position rather than silence is what protects against the accuracy-related penalty under section 6662 and, in the worst case, the civil fraud penalty under section 6663.
If the examiner's view is wrong, you are not stuck with it: a 30-day letter opens the IRS Independent Office of Appeals, and a notice of deficiency preserves the right to petition the U.S. Tax Court before paying. Because I also write opinion letters and advise on transaction structuring, I can both defend the return and fix the underlying process so the same issue doesn't recur next year.
Beyond the IRS: state and licensing matters
Crypto tax controversy isn't only federal. State revenue departments pursue income and sales tax issues, and state regulators raise money-transmitter and licensing questions that often arrive alongside a tax inquiry. I handle these in parallel so a single problem doesn't multiply across agencies — and so a tax position taken in one forum doesn't undercut you in another.
Did you receive an IRS notice about crypto?
Time matters in an audit. Tell me what you received and I'll help you understand your exposure and the right next move.