Crypto Tax Penalty Calculator IRS Notice 2014-21

Yes. The IRS treats cryptocurrency as property under Notice 2014-21. All gains, losses, and income from crypto must be reported on Schedule D and Form 8949. Starting in 2024, Form 1040 asks directly: "At any time during 2024, did you receive, sell, exchange, or otherwise dispose of any digital assets?" Answering "No" when the answer is "Yes" is a willfulness indicator.

Likely yes. FinCEN has indicated that cryptocurrency held on foreign exchanges counts as a foreign financial account. If your aggregate balance on foreign exchanges (like Binance International, KuCoin, Bybit, etc.) exceeds $10,000 at any point during the year, you must file an FBAR. The 2025 non-willful penalty is $16,536 per annual report.

Form 8938 (FATCA) requires reporting specified foreign financial assets if they exceed $50,000 (single) or $100,000 (married). Crypto held on foreign exchanges likely qualifies. The penalty is $10,000 for failure to file, plus an additional $10,000 for each 30 days of non-filing after IRS notice (max $60,000). Additionally, FATCA-related understatements trigger a 40% accuracy penalty instead of 20%.

The civil fraud penalty under IRC § 6663 is 75% of the underpayment attributable to fraud. Unlike the 20% accuracy penalty, there is no substantial understatement threshold - fraud can apply to any intentional understatement. Fraud has no statute of limitations and the IRS only needs to prove fraud by clear and convincing evidence (lower than criminal standard).

Key willfulness indicators include: using privacy coins (Monero, Zcash), using crypto mixers or tumblers, using non-KYC exchanges, structuring transactions to avoid reporting thresholds, checking "No" on the crypto question despite activity, and knowing about reporting requirements but failing to comply. Multiple indicators significantly increase criminal exposure.

IRS Criminal Investigation (IRS-CI) has a conviction rate exceeding 90%. If your case is referred to IRS-CI and they recommend prosecution, there is a very high probability of conviction. Criminal penalties include up to 5 years in prison for tax evasion (IRC § 7201) and up to 5 years for filing a false return (IRC § 7206).

The VDP allows taxpayers with willful violations to come forward and avoid criminal prosecution in exchange for paying civil penalties. For crypto, this typically means a 75% civil fraud penalty plus full FBAR penalties. While expensive, VDP provides certainty that you will not face criminal charges. An attorney should handle VDP submissions.

Yes, if your failure was non-willful. Streamlined Foreign (SFOP) has zero penalty if you lived outside the US for 330+ days in any of the last 3 years. Streamlined Domestic (SDOP) has a 5% penalty on the highest aggregate foreign balance. You must certify non-willful conduct - false certification is a federal crime.

Form 1099-DA is a new IRS form requiring centralized cryptocurrency exchanges to report customer transactions starting in 2025. Exchanges must report gross proceeds for 2025 transactions and cost basis starting in 2026. This means the IRS will have third-party records of your crypto activity, making detection of unreported transactions much more likely.

First, stop trading to avoid creating new violations. Do NOT contact the IRS before consulting a tax professional. If your exposure is low-risk (small amounts, no willfulness indicators), you may be able to amend returns quietly. For higher-risk cases, consider Streamlined Procedures. If willfulness is involved, consult a tax attorney about VDP before the IRS contacts you.