Topic: [2019-07-26] The IRS is warning thousands of cryptocurrency holders to pay taxes (Read 1220 times)

If such a situation arises, then obviously I need to consult a CA. The last time I used a centralized exchange was in 2018. After that I realized the dangers of using their services. For the past 3 years I am mostly using DEX and P2P platforms. But what was done earlier can't be undone now. In case the tax department digs out all those past transactions, then I guess I will be in trouble. The amounts involved are not that large, but still it will be better to be prepared.

The IRS will expect that you have kept full records of all your transactions, including between fiat and crypto and between crypto and crypto. If you don't have these records, then you will need to report your trades as accurately as you can, which would include contacting the exchange in question and requesting your transaction records if possible. If you have no records at all, and the exchange no longer exists to provide those records,  then I suppose your only option would be to figure out what you deposited to the exchange and what you ultimately withdrew, and calculate the difference as your capital gains. If you can't even figure out that, then I assume you would have to assume a cost basis of zero on whatever you are holding.

Having said all that, I am not a tax professional and have never been in this situation given that I do not use any centralized exchanges, so if being audited by the IRS (or your country's equivalent) is a concern of yours, then you should take professional advice.

I don’t think the IRS is going to go after taxpayers who owe $200 in unpaid taxes in masse, although they may go after a small number of them in order to make a statement.

My advice is to pay your taxes according to the law.

Now this is very interesting. If someone had an account in BTC-e/Wex.nz or Cryptopia, then how is he supposed to list the details of all the cryptocurrency transactions he made using these platforms? How the IRS is going to react in such a situation? Thankfully I am not a citizen of the United States. I had accounts with at least half a dozen exchanges (all of them KYCed) and 2-3 of these exchanges doesn't exist anymore. And in my country, I haven't yet heard from anyone that the authorities are targeting cryptocurrency users. 

Correct. The form in question is Form 8949, which you can view here - https://www.irs.gov/pub/irs-pdf/f8949.pdf - unless you have a 1099-B from your exchange(s) which is unlikely. Every trade you make, even if trading bitcoin for an altcoin or vice versa, needs to have a cost basis worked out in USD and reported on this form.

I agree. Further, given the number of exchanges which have scammed, been hacked in to insolvency, shut down, etc., not only will many people not have done this, but many people will be unable to do this retrospectively as they did not keep their own records and can no longer access their exchange's records.

Who knows for sure, but if they find out you have a KYCed account on a bitcoin exchange and you have never paid taxes related to bitcoin, then expect to be investigated.

IRS, DOJ, CFTC, Bafin ...

https://www.techtimes.com/articles/260223/20210513/binance-under-irs-doj-investigation-due-alleged-illegal-transactions-platform-cryptocurrency.htm

I think the situation has changed over such a period of time. The number of cryptocurrency holders has grown, so this number is not relevant today. I also think that letters came to those who previously declared their assets in cryptocurrency. So I think that most of the owners of digital assets did not do this at all. I think that the funds spent on the calculations of all these people in terms of the volume of expenses for these activities will exceed the taxes themselves that can be obtained in the future. Nobody knows the exact numbers, so these are only assumptions.

I have heard that US citizens need to report each and every cryptocurrency transaction made by them in the income tax return, as per the directive from the IRS. Now how many out of 50 million could have done this? I strongly suspect that a majority of the low volume users might have ignored this directive. And I don't think that the IRS will go after them for $100 or $200 in pending taxes. But they are moving very slowly. Only around 10,000 have been sent the notice till now. 10K out of 50 million... And out of that 10K, I assume a majority would be letter 6174.

It appears that approximately 1 in 6 tax dollars go unpaid, so the percentage of taxes related to unreported crypto gains may be higher than 1%. Even if 1% of citizens fail to report crypto-related income, it would mean that over 3 million people are not reporting their income accurately.

When the IRS reviews data from an exchange, they can compare this data to tax return data to get a good idea as to the amount of unreported income. However, when the IRS reviews blockchain data, for example, they will have a difficult time determining which transactions are related to taxpayers obligated to report income to the IRS.

It would not be a good use of resources for the IRS to go after people exploiting loopholes in the tax code. A loophole may or may not be something that congress intended, however, a loophole is still legal. If loopholes are being used in ways that Congress did not intend, it is up to Congress to close the loophole.

I assume there are no actual public data for this, but I would be very surprised if only less than 1% of US citizens had not properly reported their cryptocurrency gains or losses. I suspect the real figure is much higher, which is why the IRS are pushing exchanges to hand over the info. If it were only a handful of users, then their resources would be better spent elsewhere, like going after bankers who abuse loopholes to avoid tax (HA! Like they are ever going to do that.) I also suspect that if the number were really this low, the IRS wouldn't be putting the cryptocurrency question right on the front page of the 1040 and forcing literally everyone in the country to answer it.

The IRS can trivially review tax return data along with the data received from the various exchanges to get a good idea as to if income was properly reported and if not how much income was not reported. They have no reason to go after 50 million people when 99%+ of these people properly reported their income.

The number of trades is less important than the value of the transactions/trades.

Maybe. Maybe not. They certainly have the resources to send mass threatening letters to everyone, and one would imagine their database is sophisticated enough that they could simply pull the details for everyone that Coinbase/Kraken/whoever tell them about and see if they have reported cryptocurrency gains, or even something as simple as marking "Yes" to the cryptocurrency question which now appears on everyone's Form 1040.

I suspect they aren't examining actual reported gains and losses against the data the exchanges are providing them except for people with high trading volumes, because that takes a lot of manual work and is expensive and time consuming. However, if you have a fully verified and KYCed exchange account, but you have marked "No" to the question mentioned above, or haven't filed a Schedule D, or haven't filed a Form 8949, then that can be flagged up with a simple database search and is a pretty sure fire sign that you aren't giving the IRS what they want.

At the end of the day, none of us can be sure. But if you have a fully KYCed account, then the IRS will get your details eventually. Whether or not they end up investigating you further is anybody's guess. If you are concerned about this, then you should take the advice of a tax professional.

And everybody should stop handing out their KYC like confetti to anyone who asks for it.

Well.. I am not going to deny any of this. But let me ask you one question. Coinbase claims to have an userbase of 56 million verified users. A large majority may be from the United States. Then there are other exchanges such as Kraken and Bitstamp, which mostly service the American users. Do the IRS have the resources available to go after these 50-100 million users? If the users had used these exchanges for just one or two trades, then what is the possibility that the IRS will go after them?

What would that achieve? If you have completed KYC at a centralized exchange, then it doesn't matter how well you obfuscate or mix your coins after withdrawal in this case. The exchange still have a complete record of all your deposits, trades, and withdrawals, and will report that to the IRS.

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As we've said before, it is only a matter of time before all centralized exchanges are reporting all their customers to the IRS (or your equivalent tax agency or government). I am very surprised it has taken them this long to start going after other exchanges after they served a similar summons to Coinbase in 2016. If you have completed KYC somewhere, then expect the IRS to get their hands on your details sooner or later.

The IRS will likely send similar letters to Kraken customers, and Binance customers if a similar order is granted against Binance.

My advice to anyone who hasn’t been reporting all their bitcoin/crypto related income would be to file amended returns ASAP. IIRC, some of the letters allowed taxpayers to file amended returns, however there is no guarantee the IRS won’t simply audit taxpayers who appear to have not reported all their income.
There is no crypto tax law. I believe in 2014, the IRS issued guidance that they expect taxpayers to treat bitcoin as property, and that you must treat any capital gains on bitcoin as capital gains on your taxes.

For example if you receive $100 worth of bitcoin on March 1 as a payment for a service, you would report this as $100 worth of income. If you were to subsequently use that bitcoin to buy $120 worth of goods, you would report $20 in capital gains the year you sell/barter the coin.

Everyone’s situation is different, so it is always best to consult with a tax professional to discuss your specific situation.

In my opinion, this is such a psychological trick. It is only a matter of the severity of the legislation on tax evasion. You are not included in the list of people who are generally associated with cryptocurrency. And there must be such a list of owners. Therefore, in my opinion, it is easier to somehow convert the proceeds from the sale of cryptocurrency into something third that is not directly related to it and pays tax on this already. And even more so not to disclose wallets that could be directly related to you.

If I were them I'd withdraw my excess money and send it through a mixer fast, and start trading crypto with an actual CFD provider instead of a random exchange that doesn't let you easily bet short (or even bet long, if you don't consider holding BTC to facilitate that like I don't).

Sorry to update the thread but I think this is the right thread to post this since its related to it.  And so this is it!

The IRS is now asking Kraken investors who at least conducted $20,000 in the platform. It might not be long they will also be asking from Binance and other exchanges.
Source: https://bitcoinmagazine.com/business/irs-authorized-to-summon-kraken

Would the traders get to pay the tax even when they conducted transactions before the crypto tax law?

Fair enough, but I would maintain that arguing the discrepancy is not material if it does not affect the total tax due would not be frivolous. I am also unaware of any prosecutions for violating this statute when the proper amount of taxes were paid.

the joke is even bigger than that

current due taxes are paying off wars and government services from decades ago, not today's spending. They can't afford their debts & spending today despite how much tax they are levying against current wages, and they also couldn't afford it long before you were alive at all.

The money you pay in taxes now was (in effect) already stolen from you decades before you were born. Voting today for politicians promising spending on services/wars today will only affect your grandchildren's taxes, and the government contractors will be sure to overcharge for the work so they can steal something from both yours and their own grandkids too