Cryptocurrency tax audits
What is a Tax audit?
A tax audit is an examination of your tax return by the government tax agency to verify that your income and deductions are accurate. A tax audit is when the tax department decides to examine your tax return a little more closely and verify that your income and deductions are accurate.
Cryptocurrency tax audit scenario
Cryptocurrency tax audits are similar to regular tax audits, if the government agencies and tax authorities feel that there are a few transactions that need further clarification the respective tax filer will receive a tax notice. This notice is meant to be addressed by the tax payer or an Attorney/CPA/CA/Accountant hired. Once the reason for this notice is discovered, both parties collaborate and compile supporting documents that help resolve the tax notice.
Documents most commonly requested by the tax agent
Complete transaction statement across all platforms for the year of notice - Excel or PDF
Bank statements for the year of notice
Tax calculation method - If all trades are uploaded to a software and the taxable income is derived using a third party platform, an export of those files need to be submitted to the tax authorities.
When tax calculations are processed manually using a systematic approach, that method must be disclosed and explained in detail. This should align with the calculation approach guidelines provided by tax authorities
Haphazard test approach - A few transactions will be thoroughly checked and tallied with the tax return to make sure all transactions and taxable gain/losses were appropriately disclosed
Actual screenshots of specific months will be requested to tie them with excel files provided
Wallet address keys might be demanded if any of the above do not align
If the tax payer has transferred over $10,000 or equivalent coins from one wallet to another, there might be further justification required
