Coindesk reports that the IRS uses some software from “Chainalysis” to help trace Bitcoin. Its widely known that the IRS has been going after Coinbase to dump data on its users after it said that only 802 people reported Bitcoin gains in 2015.
While I’m sure most US citizens pay their taxes on Bitcoin gains there is no doubt that regulation will just increase as the US hunts down whats “theirs”.
When it comes to hunting down revenue the IRS is amazing. All the “know your client” regulation being imposed on crypto exchanges is feels much less about “fighting terrorism” than it does collecting taxes. After all, banks are some of the most regulated organizations on the planet and they still launder billions annually.
My point is that you are wise to pay your taxes on crypto earnings and avoid an expensive headache that is sure to come your way if you don’t.