What Happens If You Don’t Report Your Crypto Transactions?

March 27, 2025
What Happens If You Don’t Report Your Crypto Transactions?

Introduction

Cryptocurrency transactions are subject to taxation, and the IRS and CRA have increased their enforcement efforts to ensure compliance. Failing to report crypto transactions—whether from trading, selling, mining, or staking—can lead to penalties, audits, and even legal consequences. The tax authorities now have enhanced tools to track digital asset transactions, making it easier to identify unreported crypto income.

 

This article explains the risks of not reporting cryptocurrency transactions, potential penalties, and how to correct past reporting mistakes.

 

1. IRS and CRA Monitoring of Crypto Transactions

  • The IRS and CRA classify cryptocurrency as property, meaning all taxable events—such as selling, trading, and spending crypto—must be reported.
  • Crypto exchanges and brokers are now required to report transactions to the IRS and CRA.
  • The IRS uses blockchain analytics tools to track transactions across major exchanges and wallets, even those thought to be anonymous.
  • U.S. taxpayers must answer a direct question on Form 1040 about their crypto activity, ensuring full disclosure.

 

2. Consequences of Not Reporting Crypto Transactions

a) IRS and CRA Penalties for Non-Compliance

  • Failure to Report Income:
    • If crypto transactions generate taxable income and are not reported, taxpayers may face penalties for underreporting income.
    • The IRS may impose penalties of 20% of the underpaid tax amount for negligence.
    • CRA penalties start at 10% of unreported amounts for repeated non-disclosure.
  • Failure to File or Pay Taxes on Crypto
    • Late or non-filing of tax returns with crypto activity can result in penalties of 5% of unpaid taxes per month, up to 25% total.
    • Interest accrues daily on unpaid tax amounts.

b) IRS Audits and Investigations

  • Unreported crypto transactions increase the risk of an IRS or CRA audit.
  • The IRS is issuing crypto tax notices (CP2000, CP2501) to taxpayers with discrepancies in reported income.
  • Repeated non-compliance can trigger in-depth IRS investigations.

c) Civil and Criminal Charges for Tax Evasion

  • Intentional failure to report crypto income may lead to criminal tax fraud charges.
  • Tax evasion penalties can include:
    • Fines of up to $250,000 (U.S.) or $100,000 (Canada).
    • Imprisonment of up to 5 years in serious cases

 

3. How to Correct Unreported Crypto Transactions

  • Amend Previous Tax Returns:
    • If a taxpayer realizes they failed to report crypto transactions, they can file an amended tax return (Form 1040-X in the U.S.).
    • In Canada, adjustments can be made using the CRA’s Voluntary Disclosure Program (VDP).
  • Pay Any Outstanding Taxes & Penalties Promptly:
    • The longer unreported taxes go unpaid, the higher the interest and penalties.
  • Consult a Tax Professional:
    • If significant crypto transactions were unreported, seeking professional assistance can minimize penalties and negotiate repayment terms.

 

4. Steps to Ensure Full Compliance Going Forward

  • Keep detailed records of all crypto transactions, including dates, amounts, and fair market values.
  • Use crypto tax software (such as Koinly or CoinTracker) to track and generate reports.
  • Ensure timely reporting each tax year to avoid penalties and audits.
  •  

Conclusion

Failing to report cryptocurrency transactions can lead to severe financial and legal consequences, including IRS audits, penalties, and even criminal charges in extreme cases. As tax authorities improve their ability to track digital asset transactions, compliance is more important than ever. 

 

Tax Partners can help ensure accurate crypto tax reporting, assist with past non-compliance, and develop strategies to minimize tax liabilities while staying fully compliant.

 

This article is written for educational purposes.

 

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

 

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

 

Back to Articles