What Happens if You Don't Report Cryptocurrency on Taxes in 2026?
What happens if you don't report cryptocurrency on taxes? Let's take a look at our crypto tax evasion guide, including how to file if you previously forgot to report crypto on your tax return.
What happens if you don't report cryptocurrency on your taxes?
The IRS is perfectly clear that crypto is taxed, and failure to report crypto on your taxes may result in steep penalties.
The punishments the IRS can levy against crypto tax evaders are steep, as both tax evasion and tax fraud are federal offenses.
Depending on the severity, you may face up to 75% of the tax due, with a maximum of $100,000 fines ($500,000 for corporations) or up to 5 years in prison.
In fact, the IRS has been prosecuting crypto tax evasion since the first case in 2024. The case of Frank Richard Ahlgren III, who was charged with underreporting or failing to report $4 million in Bitcoin sales, resulted in a 2-year prison sentence and an order to pay $1 million+ in restitution.
This case marked the beginning of the IRS’s intention to crack down on tax crimes in the cryptocurrency sector.
So, if you’re thinking of risking it — don’t.
Crypto tax evasion
According to the IRS, there are two kinds of crypto tax evasion:
Evasion of assessment.
Evasion of payment.
The penalties for each type of crypto tax evasion differ.
Evasion of assessment
Evasion of assessment is the more common type of crypto tax evasion. This is when a taxpayer willfully omits or underreports income, or overstates deductions.
Examples of crypto tax evasion include:
Not reporting capital gains from sales or other dispositions of crypto.
Under-reporting capital gains from sales or other dispositions of crypto.
Not reporting additional income received in cryptocurrency.
Not reporting business income received in cryptocurrency.
Not reporting wages paid in cryptocurrency.
Evasion of payment
Evasion of payment occurs after a tax assessment has been made and the taxpayer conceals assets or funds that could be used to pay off their tax liability. This kind of tax evasion is less common in the crypto space, although not entirely unheard of.
Wondering how to avoid crypto taxes?
You can't (and shouldn't) avoid crypto taxes. Why?
Because the IRS can crack your crypto.
The IRS has a lot of avenues to find out about your crypto investments. Many crypto exchanges already share KYC data with the IRS, and the IRS has previously used a John Doe Summons to legally compel crypto exchanges to share user data. They've already won John Doe Summons against Coinbase, Kraken, and Poloniex.
Not only this, but anytime you receive an IRS 1099 form, your crypto investment information is shared with the IRS.
Many crypto exchanges like Coinbase, Crypto.com, and Kraken issue 1099 forms to certain US users — and whenever you get a 1099 form, the IRS does too.
The IRS has been training agents to data match blockchain transactions with “anonymous” wallets. As blockchain transactions are public ledgers, the IRS already has access to all the transactions made on a given blockchain. All they need to do is match your wallet address to you, which is exactly what these agents are trained to do.
Crypto tax enforcement is ongoing as we continue to see big tax evasion cases. Over 2024 and 2025, we saw the case of ‘Bitcoin Jesus’ otherwise known as Roger Ver, who was arrested on multiple counts of mail fraud, tax evasion, and false tax returns after failing to report the actual number of Bitcoin he owned and the capital gains he earned from selling it.
The IRS continues to introduce new return forms to ensure compliance with tax regulations, such as the 1099-DA form that is being introduced in early 2026. This report requires information regarding transactions of digital assets (including cryptocurrency and NFTs).
How to submit an amended crypto tax return
Forgot to report cryptocurrency on taxes? Mistakes happen, so don't panic if you've previously avoided crypto taxes, as you weren't aware of your tax obligations.
Here's what you can do:
Figure out what you owe in crypto tax (this is much easier with a crypto tax tool like Koinly)
If possible, amend your return using IRS Form 1040X.
Return your form to the IRS. In general, you should hear back from the IRS within 8 to 12 weeks.
Alternatively, the IRS Form 14457, the Voluntary Disclosure Practice Preclearance Request and Application, includes a section on reporting virtual currency.
Form 14457 allows taxpayers who may be facing criminal prosecution for violation of tax laws to voluntarily disclose information to the IRS that they previously failed to disclose.
A voluntary disclosure can help you avoid criminal proceedings if you have previously evaded assessment or payment, provided the IRS hasn't initiated proceedings already.
When you make a voluntary disclosure, you agree to cooperate with the IRS and pay any due taxes in full in order to avoid criminal proceedings. We’d say that’s a much better option than a potential $100,000 fine or prison.
Can I file my tax amendment with TurboTax?
Yes. To file your amended return through TurboTax, open your last filed return in TurboTax, and you'll see a link to amend your return.
How Koinly can help you file your crypto tax fast
Koinly helps you file your crypto taxes easily. Just sync all of your wallets and exchanges via API or by uploading a CSV file.
Koinly then calculates your capital gains, losses, income, expenses, and more using your preferred cost basis method.
Then you can download the report you need, as Koinly generates a pre-filled Form 8949 and Schedule D, or your Complete Tax Report for crypto income.
