Connect with us

Every US taxpayer in Crypto should be aware of what’s unfolding

US taxpayer in Crypto

IRS said it will issue guidance for crypto taxation this year.  “IRS knows what’s going on” said one of the popular IRS’s agents recently. Binance is restricting US residents from trading on its platform starting this September. Only last year, IRS was successful in issuing summons to Coinbase.  

A recently leaked IRS Cyber Crimes training document outlined how far IRS is ready to go to tackle the problem of ‘virtual currency trading’ and ‘transfer of wealth from fiat to bitcoin’.  

It doesn’t take a genius to sense that something is brewing on the tax and FinCEN front, at least in the US.

Highlight and Share any text

Einstein is quoted to have talked about two certainties in life: death and taxes.   Not everyone believes that Governments have the right to tax.  

The percentage of these anarchists is higher in the crypto space. Some may have even gotten into crypto space to amass wealth without declaring anything.

We at CryptoTapas have been calling people to action to never hide anything.  If you don’t like to pay taxes, move to a country where there are no taxes and see how you like it there. 

Ominous signs of impending action are already in the air

US taxpayer in Crypto

IRS is now getting ready to send out 10,000 letters to individuals with virtual currency transactions.  

“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig.

Gary Alford, the guy who helped solve Silk Road case said in a recent interview with Forbes that IRS was well aware of what was going on.  In his own words, “We’re usually behind the curve — history is made and then we react to it. But in this case, we are ahead of the curve. We were there on ground zero, and we were waiting for the rest of the world to catch up to what we already knew… We already are aware that there were cases to be made, we just didn’t know if we were at the point where we can bring it for criminal prosecution. We believe we are at that point now. If we had 12 jurors and told them someone made all their money in bitcoin, we believe that they would understand.”

Binance announced that it will stop serving US residents starting September of 2019. This may be a move to avoid US’s legal reach on the basis of Americans trading on its platform. We are not sure if this strategy will shield Binance from the US probes.

Disclosure, whether conservative or aggressive, is the way to go

US Taxpayer in Crypto

Before Trump’s Jobs Act made it clear that like-kind exchange treatment only applies to Real Estate properties and not others, some individuals have used like-kind exchange treatment with bitcoin and crypto transactions.  

Even then, the fact that these folks have gone to the lengths of enduring complexities of disclosing crypto under like-kind exchanges is a far better position than those who refused to disclose anything entirely.

While IRS is due to provide a detailed guidance in 2019, existing guidance from 2014 or even the aggressive like-kind exchange position before 2018 tax year were still grounds for good faith disclosure.

Affirmative guidance creates grounds for IRS to pursue tax evaders

IRS understands that without affirmative guidance they may face an uphill battle in tax courts to prove that not reporting or even reporting inadequately is a crime.

Once the guidance is in place, then the IRS will have all the ammunition it needs to go after those who are deluded to think they can outsmart the agency that brought down Capone.

However, IRS is not waiting until after the guidance is made available, they are already taking action (most probably based on the information they gathered from Coinbase subpoena).  

IRS has won in the court before, it will in future

As we reported earlier, IRS issued a summons to Coinbase to release its customers information.  This was when there was no concrete guidance on what defines evasion as it relates to crypto taxation.  

Now that they are gearing to issue that long eluded guidance, US residents better pay attention.

In some cases, US taxpayers who have not reported transactions that are otherwise reportable may have to go back to amend the tax returns.  You must consult a tax professional who specialises in the digital assets area.

Income tax is the least of your worries

US Taxpayer in Crypto

We issued a detailed guidance on FinCEN Form 114 disclosure last year.  We will update this guidance for 2019 toward the end of the year (another reason to subscribe) because it is, in our view, equally critical to disclose your foreign crypto exchange balances to the United States Treasury.  This requirement is in addition to your tax form disclosures, and continues year over year as long as you hold the crypto or any financial account in a non-US crypto institution or exchange.

 

Your digital wallets are exempt from the FinCEN Form 114 disclosures since you own the private keys and are not considered to be held in a foreign account.

Formation of special Task Force is likely

We speculate that the IRS will form a special task force comprising of law veterans, tax nerds and tech geeks to excavate crypto wealth no matter how deeply it is buried.  

In its training deck, IRS Cyber Crimes has alluded to how they will use the tools that could help them track the owners from back-tracking the wallet addresses to their IPs to the owners.  This will obviously need a concerted effort from the IRS, Blockchain and Crypto community and Cyber Crimes divisions.

Virtual Currency Task Force is not a bad name, but Digital Assets Task Force, or DAT Force, now that’s vogue

Blockchain’s open architecture may actually make this excavating easy for IRS, with the right resources in place.  

In the training deck, IRS Cyber Crimes laid out plans to use ‘Chainalysis’ to backtrack the ownership of bitcoin and other digital currency wallets.    

Again, these developments should only worry those who chose to bypass the law not those who have been diligent in their tax and legal affairs.

Script tightens, rattling will ensue

First the infamous IRS agent, Gary, comments on how IRS knows everything.  Then IRS goes out and gets the subpoena against US’s most popular crypto exchange, then the Cyber Crimes training deck talks about going to lengths to fish out the evaders, Trump joins in on the party calling out bitcoin while the Senate continues its grilling of Facebook Libra.  

The script of ‘anti-nation’ and ‘national security’ are slowly getting tagged to the bitcoin and crypto community.  This is not a good direction but one that we hope will take ‘measured’ turn to protect the citizens who are working with the law while unearthing those who are not.  

This balance is very hard to achieve and we have some of the most uninformed politicians in power who are calling bitcoin a ‘bigger threat to nation’.  

This is an unfortunate rhetoric that we hope the Government will quickly clarify and ensure the progress of this amazing technology with workable legal framework.  If US fails to achieve this harmony – other nations will take over the US’s position in the technology front.

Conclusion

Something is brewing around the world.  Governments are more aware of how blockchain wallets work, what DEx’s are and how the world of crypto trading works.  

Our recommendation continues to be that you stay compliant with country’s laws, not just tax but also financial account disclosure requirements, and stay clear of any nefarious ideas to evade taxes or to break the law.

Thank you for reading the article.

You may be interested:
IRS Cyber Crimes leaked training document

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Subscribe-top5-long-term-cryptocurrencies

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

About the author

RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.

Read more about the author here.

 

Share:

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn

TRENDING