The US issues a compliance warning regarding cryptocurrency taxes to 12 states

Warning from the central tax authority

The U.S. Internal Revenue Service (IRS) has sent formal tax compliance warnings to residents in 12 U.S. states identified as having unusually high rates of undeclared or under-declared cryptocurrency on their 2024 and 2025 tax returns. This action, first reported by Bloomberg Tax and confirmed by the IRS in statements dated January 28, 2026, represents the agency's strongest state-level cryptocurrency tax enforcement campaign since the 2021 John Doe lawsuit against Coinbase.

The 12 states that received targeted alerts are: California, Florida, New York, Texas, Washington, Illinois, New Jersey, Georgia, Pennsylvania, Virginia, Colorado, and Massachusetts.

According to data compiled from exchange 1099 forms, blockchain analysis, and previous John Doe lawsuits, these states account for approximately 65-70% of the total cryptocurrency owned and traded in the United States.

Content of the warnings

The warnings reportedly focus on inconsistent reporting, loopholes in enforcement, and a lack of coordination between state tax agencies and federal cryptocurrency tax regulations. Concerns may include:

• Reporting a lack of profit from cryptocurrency trading.

• The tracking of earnings from staking , mining, and airdrops is inadequate.

• The discrepancy between state-level guidance and federal IRS classification.

• The data sharing mechanism with federal agencies is weak.

Essentially, the IRS is signaling that blind spots at the state level are becoming unacceptable as the use of cryptocurrency increases.

Internal tensions escalate.

Tax enforcement in the U.S. is shared between federal and state governments, but cryptocurrencies complicate this structure. Borderless transactions, platforms operating across multiple jurisdictions , and determining the residency of taxpayers can be challenging.

By issuing this warning to the states, the IRS is asserting that cryptocurrency tax enforcement must be uniform nationwide, even if implementation remains decentralized. This could lead to closer coordination—or conflict—between state and Washington tax agencies.

Strong impact signal

Cryptocurrencies are being normalized into the existing tax system, rather than being treated as an exception. As enforcement shifts from education to accountability, informal or inconsistent reporting practices are likely to face closer scrutiny.

For the industry, this underscores the importance of tax infrastructure, reporting tools, and professional compliance support as cryptocurrencies become increasingly prevalent.

While improved compliance can strengthen the legitimacy of the market, there is also the risk of fragmented or overly heavy-handed enforcement at the state level. If states interpret federal pressure differently, users may face inconsistent rules or overlapping reporting burdens.

Assessment and Conclusion

The IRS's targeted warnings to 12 high-volume states represent a clear escalation in law enforcement—a shift from general summonses and transaction reporting to more subtle, individual-level notifications supported by sophisticated on-chain and off-chain matching systems. While not yet audits, these letters carry a real deterrent: fines, interest, and the potential for criminal prosecution for willful non-compliance.

For cryptocurrency investors in the affected states (especially California, New York, Texas, and Florida—where the largest user bases are located), this is a stark reminder that the IRS is no longer relying on voluntary compliance. The era of “don’t ask, don’t tell” about cryptocurrency taxes has officially ended.

Disclaimer: The information presented in this article is the author's personal opinion in the field of cryptocurrency. This is not financial or investment advice. All investment decisions should be based on careful consideration of your personal portfolio and risk tolerance. The views expressed in this article do not represent the official stance of the platform. We recommend that readers conduct their own research and consult with experts before making any investment decisions.

Compiled and analyzed by HCCVenture

Follow HCCVenture here: https://link3.to/holdcoincventure