TaxBit will be tasked with aggregating transaction data to ensure the figures on both sides match.
The Internal Revenue Service (IRS) has officially announced a partnering with TaxBit to provide data analysis and tax calculation support for taxpayers who own crypto.
CEO and Co-Founder of TaxBit, Austin Woodward, said that the move “indicates regulators are embracing the asset class, but doing so in a way that ensures a straightforward approach to conform with existing regulations.” He believes this is an important step for the enablement of widespread crypto adoption.
The Utah-based crypto tax software company announced a one-year contract to provide auditing services for crypto transactions as requested by the IRS. Their main objective is to help the IRS to verify that high-volume crypto traders are reporting on their taxes properly.
TaxBits director of government relations, Seth Wilks, explained that the company will help the agency understand the data:
“We‘ll be providing data analysis and support and calculations for the IRS to help them really get to the right answer. [We’ll fill] some of the gaps in tools that just don‘t exist right now within their own ecosystem, and so we’re coming in to make sure that they are fully understanding the data.”
High-net-worth individuals only
Wilks was unable to get into the specifics of the deal, but he did state that only high-volume entities or traders will be looked over, traders with thousands of annual transactions. “High-net-worth individuals or investment funds,” as he put it. “The typical everyday investor […] we wont see them.”
These audits will not be targeting cryptocurrency owners, nor will they be aimed at TaxBit customers. Instead, the feds will provide the data for TaxBit to analyze based on the same prerequisites for any normal audit. The difference is, if the audits include cryptocurrency transactions, the IRS will defer to TaxBit to check the necessary boxes.
Smaller tasks the TaxBit team will also be responsible for will be to search for missing transactions and verify that transactions that should be reported are filed properly. In the U.S., every crypto transaction creates a taxable event.
The news comes a few weeks after TaxBit announced a record-breaking $100 million Series A funding round. The investors were led by Paradigm and Tiger Global, along with PayPal Ventures, Coinbase Ventures, Winklevoss Capital, Galaxy Digital, and others.