The Internal Revenue Service (IRS), the United States’ government’s tax organization, has issued a firm warning to cryptocurrency users–or rather, over10,000 firm warnings that were sent out in the form of letters sent out to cryptocurrency holders last week. Each letter contained a firm admonition: report your crypto on your tax form or pay the price.
The Wall Street Journal reported that at least three variations of the letter were sent out in accordance with the information that the IRS has about each individual. One of the variations demanded that its recipient sign a statement declaring that they were in compliance with tax law under the penalty of perjury.
Anyone get one of these IRS notices? I payed taxes on bitcoin gains during last two bubbles, so I’m guessing they send these to all people who declared #bitcoin gains? I declared a cost basis of 0…which is essentially true (I mined back in 2010, so I spent like pennies)… pic.twitter.com/VAAUCy2cKg
— ₿ Goss, MD BTC/LN⚡ 🔑 📡 👂 📢 (@_drgo) July 26, 2019
“Taxpayers should take these letters very seriously”
IRS Commissions Chuck Rettig told The Guardian that taxpayers should not take the warnings lightly: “taxpayers should take these letters very seriously,” he said. ‘The IRS is expanding efforts involving virtual currency, including increased use of data analytics.”
Indeed, Sean Ryan, founder of crypto tax company Sean Ryan, told Finance Magnates earlier this year that the IRS had set up working groups to “identify potential tax evaders.”
“We do see the IRS actively going after this,” Ryan said.
Signs that the IRS has been cracking down on individuals and businesses that deal in cryptocurrency have been appearing now and then over the last two years. Perhaps the most famous incident occurred in late 2017 when US-based cryptocurrency exchange and wallet service Coinbase was court-ordered to hand over account records for 13,000 of its users.
We’re Live in 3,2,1 - iFX EXPO Dubai Opens its Doors Tomorrow Morning!Go to article >>
And indeed, The Guardian reported that the account information handed over as a result of that court case could be the data that the IRS used to send out these letters.
Most of my clients who received these were early Coinbase users. They’ve gone out to some big fish, but also to some smaller holders too.
It seems as if this is a warning to everyone to get compliant as quick as you can while the IRS is still feeling somewhat forgiving 🙂
— Crypto Tax Girl (@CryptoTaxGirl) July 26, 2019
However, there is evidence to suggest that the data may have come from elsewhere–cryptocurrency exchanges operating in the US have been ordered to track their users’ trading data for tax purposes for several years.
The IRS has also been acting as a participating member of the Joint Chiefs of Global Tax Enforcement (J5) group, which was formed to investigate crypto-related financial crimes, including money laundering in tax evasion. In June, IRS criminal investigations chief Don Fort warned that J5 had “found innovative ways to tackle these problems, remove barriers, and develop processes” to deal with cryptocurrency-related crimes.
“It is not a good time to be a tax criminal on the run. Your days are numbered,” he said.
Perhaps the letters are the final push that some cryptocurrency holders may need to begin reporting their gains. Data collected in 2018 revealed that the number of cryptocurrency holders who were accurately reporting their crypto was startingly low; however, some of this could be attributed to the IRS’ lack of clarity on how and when crypto holders should be paying tax on the cryptocurrency.