Part 2/7:

While the IRS may struggle with direct access to the specifics of a Monero transaction, they have the ability to track byproducts—the traces that exist outside the privacy layers of the coin. For instance, if a user buys Monero through an exchange, the IRS can determine how much fiat currency was used to make that purchase. Even though the particulars of what happens within the Monero transactions remain hidden, the actions taken afterward could lead to detectable income.

Realizing Gains and Tax Obligations

Ultimately, the key point is when an individual decides to convert their Monero back into a more traditional asset or fiat currency. At that point, the IRS can interject and demand tax payment on any capital gains realized during the process.