What Happens If You Don’t Report Crypto Tax? (IRS Crackdown)

In this guide, we’ll break down a simple 3-step process for submitting a crypto tax amendment. But first, let’s break down the basics of crypto taxes and what can happen if you decide not to report your cryptocurrency. 

What happens if you don’t report cryptocurrency on your taxes? 

Not reporting taxable income from cryptocurrency is considered tax evasion — which is punishable by a fine up to $100,000 and a prison sentence of 5 years.

Remember, transactions on blockchains like Ethereum and Bitcoin are publicly visible. In the past, the agency has worked with contractors like Chainalysis to analyze blockchain transactions and identify ‘anonymous’ wallets.

In addition, 1099-DA reporting will become mandatory for all cryptocurrency exchanges starting in 2026, giving the IRS more information about your capital gains and losses than ever before.

What should I do if I forgot to report my crypto taxes in the past? 

What should you do if you already filed your tax return, but you forgot–or didn’t know you had to–report your cryptocurrency gains on that return? The best idea is to amend your tax return from whichever year(s) you didn’t include your crypto trades. 

You have three years from the date that you filed your return to file an amended return. 

Some investors fear that submitting an amended return may increase their risk of a future audit. Remember, being proactive is the best way to avoid criminal penalties. The IRS is more lenient towards taxpayers who willingly come forward about unreported income.

How to submit an amended tax return 

If you’ve forgotten to report cryptocurrency on your taxes,  you can follow this 3-step process to submit an amended tax return. 

Step 1: Calculate your tax liability

Step 2: Complete Form 1040X 

Step 3: Mail or e-file your amended tax return

Step 1: Calculate your tax liability

The first step to submitting an amended tax return is figuring out your tax liability.

To calculate your tax bill, you’ll need to calculate your capital gains and income from cryptocurrency during the tax year. To do this, you’ll need accurate records of your cryptocurrency disposals and income events.

If you're having trouble calculating your tax bill, crypto tax software can help. Just connect your wallets and exchanges and let the platform generate a complete tax return in minutes!

Step 2: Complete Form 1040X

Once you have determined your tax liability, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return. This form comes with easy-to-follow instructions and requires you to only include new or updated information. You’ll be asked to provide your personal information, details of what changed, and an explanation of the changes.

Step 3: Mail in or e-file your amended return

Once you’ve finished amending your tax return, you can mail it to the IRS. Before sending, you should make sure that you’ve attached all necessary forms and supporting documents. In addition, if your amendment results in a higher tax bill, you should include the additional tax payment with the return. 

Once you’ve submitted your amended return, it’s important to be patient. Typically, it takes the IRS 8–12 weeks to process your amendment. In some cases, the process could take as long as 16 weeks.

If you’re wondering whether your tax return has been processed, you can check its status online using the IRS’s ‘Where’s My Amended Return?’ tool.
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