IRS Strategy Towards Cryptocurrency
The US Treasury Department (IRS) filed a successful lawsuit against Coinbase, Inc., resulting in Coinbase having to provide information on all account holders having transactions in excess of $20,000 in any year since 2007. This resulted in the surrender of information to the IRS for over 14,000 account holders in 2018.
The IRS believes the following:
- The majority of all virtual currency gains have not been reported.
- Bitcoin, Ethereum, Ripple, Bitcoin Cash, and other cryptocurrency technologies have been used to avoid paying taxes.
- Cryptocurrency abusers could fall under its Abusive Tax Scheme Program.
As a result, they are requiring the release of account records and other types of data concerning cryptocurrency transactions.
The IRS offshore voluntary disclosure efforts produced 6.5 billion dollars in back taxes and penalties from the years 2009 to 2014. From the tax year 2007 through tax year 2010, the IRS has estimated that the number of tax payers reporting foreign accounts has doubled. The U.S. House of Representative Ways & Means Committee issued a letter to the IRS stating that they were unhappy that the IRS was focusing more on enforcement than they were providing guidance for taxpayers.
The courts have allowed the IRS to investigate what they call “the reporting gap between the number of virtual currency users Coinbase claims to have had during the summons period and US bitcoin users reporting gains or losses to the IRS during the summon years.” This indicates that the court thinks the IRS has a legitimate interest. We know that the IRS has the capability to do large-scale data analysis and processing because of what they accomplished in their Off Shore Abusive Tax Scheme Program.
Tax evasion is a serious offense that can lead to a prison sentence and/or significant fines, penalties, and interest.
The Internal Revenue Code treats your cryptocurrency assets like property, which are subject to capital gains taxes. This means that you pay taxes on the increase in the value of your cryptocurrency holdings.
Alternate Tax Solutions Crypto Tax Services:
- Counseling on how to track the ins and the outs of crypto transactions
- Determining the taxable income and capital gains tax exposures
- Correlating transaction data from cryptocurrency to cryptocurrency
- Standardizing transaction data from exchange to exchange
- Determining holding periods and cost basis that exist in wallets
- Gathering tax reports from exchanges if they exist
- Providing a documentation binder that correlates all trades, transfers, and sales across all exchanges and wallets
- Defending cryptocurrency tax payers in the event of an IRS audit