If you’ve bought, sold, mined, or traded cryptocurrency, you’ve likely already triggered a tax event. The IRS treats crypto like property, not currency. That means every trade, every swap, every airdrop - even sending Bitcoin to a friend - could create a taxable gain or loss. And if you didn’t track it, you’re already behind.
Most people think they just need to file Form 8949 and call it a day. But that’s where things get dangerous. The IRS now has access to data from major exchanges like Coinbase and Kraken. They know who sent what, when, and how much. If your records don’t match up, you’re not just risking an audit - you’re risking penalties, interest, or worse.
You Don’t Wait for the Audit to Call
The worst time to hire a crypto tax lawyer is after the IRS sends you a notice. By then, you’re already in reactive mode. The best time is before you even file your return - especially if you’ve had any of these situations:
- You traded crypto for other crypto (like BTC to ETH) and didn’t report it as a taxable sale
- You mined crypto and never recorded its fair market value on the day you received it
- You received crypto from a hard fork or airdrop and didn’t include it as income
- You used crypto to buy goods or services and didn’t track the cost basis
- You failed to report crypto activity on previous years’ returns
These aren’t minor oversights. The IRS can impose penalties up to 75% of the underpaid tax if they determine you acted with fraud. Even if you didn’t mean to cheat, the burden of proof is on you to show you made a good-faith effort to comply. That’s where a lawyer comes in.
What a Crypto Tax Lawyer Actually Does
A good crypto tax lawyer isn’t just someone who knows tax law. They’re someone who understands how blockchain works, how wallets function, how DeFi protocols generate taxable events, and how the IRS interprets existing statutes to fit crypto.
They don’t just file your return. They help you:
- Reconstruct years of missing transaction history using blockchain explorers and exchange records
- Calculate cost basis and fair market value for thousands of trades across multiple platforms
- Apply IRS guidance (like Rev. Rul. 2019-24) to edge cases like staking rewards or liquidity pools
- Structure voluntary disclosures to reduce penalties or avoid criminal exposure
- Defend you if the IRS starts an audit - not just answer questions, but control the narrative
Many CPAs will help you file. But only a lawyer can represent you in front of the IRS if things turn adversarial. And if you’re facing criminal allegations - like willful failure to file or tax evasion - you need someone who understands both tax law and criminal procedure.
Red Flags When Choosing a Lawyer
Not everyone who calls themselves a "crypto tax expert" actually knows what they’re doing. Here’s what to watch out for:
- They claim to be a "crypto specialist" but can’t explain the difference between a utility token and a security token
- They promise to "eliminate your crypto tax liability" - there’s no magic loophole
- They use only one software tool (like Koinly or CoinTracker) and don’t verify the data themselves
- They don’t have a background in tax law - just a certification from an online course
- They won’t tell you how many crypto tax cases they’ve handled
The best crypto tax lawyers have been practicing tax law for 15-20 years. Many are also CPAs. That dual background matters. Tax law doesn’t change overnight. The rules around capital gains, income reporting, and recordkeeping have been around for decades. What’s new is applying those rules to crypto. You need someone who’s seen how the IRS treats new asset classes - like foreign currency in the 90s or online marketplaces in the 2000s - and can predict how they’ll treat crypto next year.
What to Ask Before Hiring
Don’t just pick the cheapest option. Ask these questions:
- Have you handled cases like mine before? (Be specific: "I traded 1,200 times across 8 wallets and 3 exchanges over 5 years.")
- Do you work with CPAs or forensic accountants to verify transaction data?
- What software do you use to track cost basis and fair market value?
- How do you handle hard forks, airdrops, and DeFi income?
- Have you represented clients in IRS audits or voluntary disclosure programs?
- What’s your fee structure - hourly, flat rate, or contingency?
If they hesitate or give vague answers, walk away. This isn’t tax prep. This is legal defense.
Timing Is Everything
The IRS has a Voluntary Disclosure Program. It’s not publicized, but it exists. If you come forward before they contact you, you can often avoid criminal charges and reduce penalties dramatically. But you have to act before they know you’re non-compliant.
Waiting until you get a letter from the IRS means you’re already in the system. They’ve flagged your name. They’ve matched your exchange data. Now you’re not just fixing a mistake - you’re trying to explain why you hid it.
Even if you’re not worried about penalties, you still need legal advice. Why? Because crypto tax law is evolving. What’s compliant today might be considered evasion next year. A good lawyer doesn’t just fix your past - they help you build a system that keeps you safe going forward.
It’s Not Just About Money
Most people think crypto tax is about saving dollars. But the real risk is losing your freedom.
In 2023, the DOJ charged over 120 people for crypto tax evasion. Some got prison time. Others lost their licenses, their businesses, their reputations. You don’t need to be a millionaire to be targeted. The IRS goes after anyone who looks like they’re hiding activity.
And if you run a business that accepts crypto? The stakes are even higher. You’re not just reporting your personal gains - you’re handling payroll, expenses, and sales tax across multiple jurisdictions. One misstep can trigger an audit of your entire operation.
That’s why lawyers who specialize in crypto tax also work with business owners - to set up recordkeeping systems, define tax treatment for token sales, and ensure compliance before the IRS even notices you exist.
What Happens If You Do Nothing?
Nothing might seem fine - until it isn’t.
The IRS has a 6-year window to audit returns if they suspect substantial underreporting. If you didn’t report $50,000 in crypto gains and they find out, you could owe $20,000 in back taxes, $15,000 in penalties, and $8,000 in interest - all compounded over years. And if they think you did it on purpose? That’s a felony.
Even if you’re not rich, the IRS doesn’t care. They treat every case the same. If your records are messy, they’ll assume you’re hiding something. And once they start digging, they won’t stop until they’re sure.
Don’t gamble with your future because you thought you could handle it yourself. Crypto tax compliance isn’t a DIY project. It’s a legal minefield - and you need someone who’s trained to walk through it safely.
Do I need a lawyer if I only made a few crypto trades?
If you made fewer than 10 trades and all were simple buys and sells with clear records, you might not need a lawyer - just a good tax software tool. But if you’ve ever swapped crypto for crypto, earned staking rewards, or used DeFi protocols, you’ve triggered complex tax events that even advanced software can misreport. A lawyer can review your situation and tell you if you’re at risk. It’s cheaper than fixing a mistake later.
Can my CPA handle my crypto taxes instead of a lawyer?
A CPA can prepare your return, but they can’t represent you if the IRS accuses you of fraud or willful non-compliance. Only a licensed attorney can provide legal representation during an audit or criminal investigation. If your CPA doesn’t have a lawyer on staff who specializes in crypto, you’re not fully protected. Many CPAs now partner with crypto tax attorneys for exactly this reason.
What if I lost my crypto transaction records?
It’s not uncommon. Many people used wallets that no longer exist or traded on platforms that shut down. A good crypto tax lawyer knows how to reconstruct records using blockchain explorers, exchange API logs, bank statements showing crypto purchases, and even email confirmations. They’ll use forensic accounting methods to estimate your cost basis and fair market values - not guess, but document their methodology so the IRS accepts it.
Is crypto tax compliance different in New Zealand compared to the U.S.?
Yes. In New Zealand, the IRD treats crypto as property and taxes capital gains only if the asset was bought with the intent to sell. In the U.S., every trade is a taxable event, regardless of intent. If you’re a U.S. taxpayer living abroad - or a New Zealander with U.S. crypto holdings - you’re subject to U.S. tax law. That’s why many expats need both local and U.S. tax advice. A lawyer who understands both systems is essential.
How much does a crypto tax lawyer cost?
Fees vary based on complexity. A simple review of one year’s trades might cost $1,500-$3,000. Full reconstruction of 5+ years of activity, including voluntary disclosure, can run $5,000-$15,000. Hourly rates for experienced crypto tax attorneys range from $300 to $600. While it seems expensive, it’s far less than the $50,000+ in penalties and interest you could face if the IRS finds you non-compliant.
Can I just use crypto tax software instead of hiring someone?
Software like Koinly, CoinTracker, or ZenLedger can help you calculate gains and losses - but they’re not legal advice. They don’t know how the IRS interprets your specific transactions. They can’t tell you if your DeFi income should be taxed as ordinary income or capital gain. They can’t represent you. And if you rely on software alone and get audited, the IRS will say you didn’t exercise reasonable care. You need a human expert who can explain and defend your position.
What if I’m not a U.S. citizen but I own U.S.-based crypto?
If you’re a U.S. citizen or resident alien, you’re taxed on worldwide income - even if you live in New Zealand, Canada, or Australia. If you’re a non-resident but hold crypto on a U.S. exchange or trade with U.S. entities, you may still have U.S. tax obligations. The IRS doesn’t care where you live - they care where you’re taxed. A lawyer who understands international tax treaties and U.S. jurisdiction over crypto is critical in these cases.
