Posted 7 months ago | by @devadmin
A former top investigator is warning cryptocurrency users that “a high-stakes game of chicken” between the Internal Revenue Service (IRS) and themselves will result in “civil and, potentially, criminal penalties,” for failing to report crypto hodlings.
In an article in Law360 Don Fort a former chief of the Internal Revenue Service’s (IRS) criminal investigation division and stated that while the agency has thus far focused on informing the public of proper reporting guidelines, this year that effort will change to strict “enforcement.”
“The IRS has been not-so-quietly positioning itself for a smooth transition from education to enforcement in 2021 and beyond.”
The article further adds, that this effort actually started with Coinbase, which answered a “John Doe” summons in 2018 handing over information on 13,000 users. Law360 notes that this case could soon see action on those that failed to reconcile the tax gains. The article additionally mentions a request the IRS made to a foreign exchange Bitstamp for information on one American account.
The former IRS investigator says the crackdown is due to a “tax gap” in which the two authors believe crypto plays a role in — the split between the total income from taxes that should be paid to the Treasury versus what the agency actually receives.
“As of Dec. 10, with Bitcoin fresh off new record highs, the market capitalization of cryptocurrencies was $524 billion,” the authors wrote. “Assuming cryptocurrency-related tax liabilities of $25 billion and a 50% compliance rate, unreported cryptocurrency tax liabilities again account for around 3.2% of the $381 billion tax gap. Thus, it is likely that unreported taxable cryptocurrency transactions are contributing significantly to the tax gap.”
The article infers that major trends changing like a question asking taxpayers if they hold any crypto placed at the top of form 1040 — indicates that the IRS is gearing up for enforcement. “Even though the IRS has not yet announced many mainstream tax evasion or money laundering cases involving virtual currency, that trend should change in 2021.”
However, there are still a lot of unanswered questions when it comes to cryptocurrency which the IRS has failed to address such as how DEFI, airdrops, chain-splits or staking will be taxed. Especially if the coins are locked in a contract and that’s just scratching the digital ledger of unaddressed problems.
Bitcoin is currently trading at [FIAT: $33,296.59] UP +3.9% in the last 24 hours according to Coingecko at the time of this report.