Cryptocurrency Tax Crackdown Raises Specter of Legal Challenges

Legal battles over the tax treatment and reporting burdens for cryptocurrency could be on the rise as the IRS and Treasury try to stop evasion and money-laundering in the industry.

In recent years, the IRS has repeatedly signaled that tax compliance for cryptocurrency users is a high and growing priority. Commissioner Charles Rettig told lawmakers in April that cryptocurrency tax underpayment is a key contributor to the gap between what the federal government is owed and what it collects, an amount he said could total more than $1 trillion annually.

Neither the IRS nor the Financial Crimes Enforcement ...