Under IRS audit for cryptocurrency? The examiner already has data. The question is what your records show.

Crypto audits begin with a mismatch between broker forms and the return, or with data from a John Doe summons, and they ask for every wallet and exchange you have controlled. Missing cost basis is treated as zero. With a power of attorney on file, the IRS communicates with us, we reconstruct the records under privilege before anything is produced, and the same attorneys handle the appeal and the Tax Court case if the examination gets that far.

The audit is a document request with a deadline.

What we do before anything is produced.

The examiner will request exchange statements, wallet addresses, and a transaction history, often through the Historical Digital Asset Form, and will compare the answers to on-chain analytics. An incomplete disclosure is treated as concealment. So the first step is a full reconciliation of every wallet and exchange, done by our CPAs under the attorney’s engagement, so we know what the records show before the IRS asks. Then the production is managed to answer what was asked, the interview happens through counsel, and the positions on unsettled questions are documented.

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Andrew Gordon, attorney at Gordon Law, seated at a conference table negotiating during a tax meeting.

Andrew Gordon, Esq., CPA

Managing Partner

IRS audits don’t always have to be painful, even with digital assets involved. During one cryptocurrency audit, we fixed our client’s tax calculations, resulting in a refund of $61,405!
Crypto Audit with $60,000 Refund
Some IRS audits are a delicate balancing act, and it’s crucial to understand your legal rights. One client had not reported activity from decentralized exchanges. By carefully navigating the audit and controlling the scope through legal means, we helped them avoid paying $44,410 in additional taxes.
Unreported Decentralized Exchanges
When our client was audited for cryptocurrency, the IRS used a popular tax software to calculate the tax owed, but it was far from correct. We proved that thousands of transactions classified as ordinary income were actually non-taxable transfers, and brought the client’s bill down by $400,000.
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In this audit, the IRS accepted our crypto tax calculations with no issues, but the client had also made serious mistakes with their business accounting. This could have led to an expansion of the audit, several penalties, and a very high tax bill. We managed to close the audit with no expansion to additional tax years.
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Where to start

How a crypto audit works

The parts of a crypto examination that differ from an ordinary audit.

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An examination letter states the years and the items. The examiner requests records, increasingly using the Historical Digital Asset Form to ask for every wallet and account you have held, and compares your reconstruction to the exchange data and analytics the IRS already has. Adjustments are proposed in a report; you can agree, appeal within 30 days, or petition the Tax Court after a notice of deficiency.

Usually a mismatch: Form 1099-DA or 1099-B proceeds that exceed what the return reported, a 1099-MISC for staking rewards that never appeared, or a “no” answer to the digital asset question when the IRS holds contrary data. John Doe summons returns from Coinbase, Kraken, Poloniex, and others have driven a second wave. How the IRS finds unreported crypto

Three years from filing normally, six years if the return omitted more than 25 percent of gross income, and without limit for fraud or years never filed. The IRS has also argued that a pending John Doe summons suspends the clock, which is why letters to Poloniex customers in 2025 and 2026 reached back to 2016. Assessment statute of limitations

Two reasons. Reconstructing unreported activity reveals what was missed; with an attorney that work is privileged, with a preparer it may be evidence. And a crypto audit that finds intent becomes a criminal referral; managing an examination so it stays civil is legal work. Only an attorney can take the case to Tax Court if the result is wrong.

If adjustments stand, the appeal window is 30 days from the examination report and the Tax Court window is 90 days from the notice of deficiency. Penalties are often removable even when tax is owed, and the resulting balance can be paid over time or settled through the collection process. Appeals or Tax Court

The attorneys who handle crypto audits

Every crypto audit is staffed by an attorney with a CPA on the reconciliation.
Meet our team

Andrew Gordon

MANAGING PARTNER

Jennifer Keegan

MANAGING ATTORNEY | TAX CONTROVERSY

Unreported years and the audit that has not happened yet

If you know past years are unreported and no letter has arrived, the audit is still avoidable. Amended returns for non-willful omissions, or the Voluntary Disclosure Practice where the omission may have been willful, correct the years before the IRS makes contact, and the IRS is generally more lenient with taxpayers who come forward. The reconciliation is the same work either way; doing it now, under privilege, is the difference between a correction and an examination. The Voluntary Disclosure Program

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