Bitcoin Investors, Beware: The IRS Is Coming for Your Vast Riches

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"The IRS is under pressure to increase compliance in digital coin tax reporting based on an audit done by the US inspector general, and has taken other steps to identify unreported digital currency transactions such as a John Doe request of Coinbase and a survey of filed returns," explains Randy Tarpey, a digital currency tax specialist at Sickler Tarpey & Associates, in Tyrone, Pa.

With no third-party tax reporting to the IRS currently available, the agency has no automatic way to enforce or encourage tax reporting compliance other than 1099-K reporting which only covers a few taxpayers, Tarpey says. "While taxpayers can initially avoid reporting digital coin transactions the blockchain is public, and once enforcement begins, transactions are easily obtained," he notes.

The nature of Bitcoin makes it difficult to track in some respects, says Dean Anastos, CEO at Blockchain Developers in New York City