According to the Government Accountability Office, these are the facts:

As virtual currencies like bitcoin grow in popularity, how can IRS be sure that people are paying relevant taxes?

IRS addressed some taxpayer questions in its 2014 and 2019 virtual currency guidance. For example, the guidance says that using virtual currency can produce taxable capital gains.

But IRS could do more to help taxpayers comply. Financial institutions already report information about investment sales to IRS and taxpayers—to make both aware of any taxable income. While some virtual currency transactions are reported, not all are. Our would improve reporting and more.

Examples of Virtual Currency Transactions that Can Produce Taxable Capital Gains

What GAO Found
Taxpayers are required to report and pay taxes on income from virtual currency use, but the Internal Revenue Service (IRS) has limited data on tax compliance for virtual currencies. Tax forms, including the information returns filed by third parties such as financial institutions, generally do not require filers to indicate whether the income or transactions they report involved virtual currency.

IRS also has taken some steps to address virtual currency compliance risks, including launching a virtual currency compliance campaign in 2018 and working with other agencies on criminal investigations. In July 2019, IRS began sending out more than 10,000 letters to taxpayers with virtual currency activity informing them about their potential tax obligations.
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