IRS Sending Warning Letters To More Than 10,000 Taxpayers About Cryptocurrency Reporting -

BarberFerdinand

True & Honest Fan
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Taxpayers who deal - or even dabble - in virtual currency may be on the receiving end of a letter from the Internal Revenue Service (IRS) this month. The IRS has announced that they have begun sending letters to taxpayers who might have failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

The IRS started sending the letters to taxpayers last week. The names of these taxpayers were obtained through various ongoing IRS compliance efforts.

(For more on some of those efforts - like the Coinbase court saga - click here.)

There are three variations on the letter: letter 6173, letter 6174, or letter 6174-A. The letters are allegedly targeted to taxpayers depending on the information available to the IRS. According to the IRS, "[a]ll three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors." However, all three versions are not the same; one version alleges noncompliance while another merely indicates that the IRS has been made aware of cryptocurrency activity attached to the taxpayer.


Depending on the version of the letter you receive, your next steps may vary. But if you're one of the more than 10,000 taxpayers expected to receive a letter by the end of August, don't ignore the IRS.

"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. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."



This campaign is not one of the six compliance campaigns for taxpayers announced earlier this month. It is, however, one of the IRS campaigns announced last year to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers.

A compliance campaign is a targeted directive on a particular issue; they happen when the IRS determines that there are taxpayer issues which require a response from the agency. When the IRS announces a campaign (or campaigns), it's a signal that they will be dedicating time, resources, training, and tools towards a tax compliance goal. To date, IRS has announced a total of 59 campaigns.

(You can read more about the most recently announced compliance campaigns here.)

In 2014, the Internal Revenue Service (IRS) issued guidance to taxpayers (downloads as a PDF) making it clear that virtual currency will be treated as a capital asset, provided they are convertible into cash. In simple terms, this means that capital gains rules apply to any gains or losses. (You can read more on the taxation of cryptocurrencies like Bitcoin here.)

However, two years later, in 2016, only 802 individual tax returns out of the 132 million filed electronically with the IRS reported income related to cryptocurrencies. The government is clearly seeking to increase compliance.

According to the IRS, the agency will continue to follow-up on cryptocurrency compliance through a variety of efforts, ranging from taxpayer education to audits to criminal investigations. The IRS has also warned that taxpayers who do not properly report can be liable for tax, penalties, and interest; in some cases, taxpayers could be subject to criminal prosecution.

If all of this sounds familiar, you're not mistaken. There are clear parallels between the IRS' focus on cryptocurrency and the prior targeting of offshore accounts. Investigations into offshore accounts began with subpoenas to financial institutions and eventually became a full-fledged IRS compliance initiative. Unlike offshore account disclosure, however, the IRS has signaled that it will not offer an amnesty program (it's worth noting that many tax professionals question whether that will stick).

The issuance of these cryptocurrency "educational" letters is intended to be a warning shot to taxpayers. The IRS says to expect additional legal guidance in this area in the near future.

welp. I guess rl meetups are about to get a lot more popular.
 

ScamL Likely

IT'S! NOT! EVEN! HOT! OUT! SIDE~!
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I wonder if Josh got one of these. But then since he's not currently in the US that probably muddles things further.
 

millais

The Yellow Rose of Victoria, Texas
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And they really think anyone will snitch themselves out? Fucking A+ IRS.
The same type of clueless Boomers who sunk their entire life savings into Bitconnect and other obvious scamcoins will probably meekly report their crypto earnings to big daddy IRS
 
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wylfım

To live a lie, or die in a dream?
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Isn't bitcoin technically traceable on the blockchain? I wouldn't be surprised if they aggregated multiple sources of data from Google Facebook and Microsoft to link people's wallet addresses to their irl identities.
 
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gobbogobb

Granny sees what you post online.
True & Honest Fan
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More like they'll look deeper for crypto when people get randomly audited.

If you're moving large volumes of any asset on one of the exchanges that cooperates with the feds You're screwed
 

Krimjob

Resident God-Emperor
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To be clear, this is already a thing in Europe and there is some caution to be taken here.

What they've basically done is taken records from trading platforms in their country and banks, and use that to essentially extort people. They tried that with me for example, as they knew I had bought some BTC in the past. I told them to fuck off. In Scandicuckinavia they went as far as to basically force you to record every transaction, the value the BTC had at each transaction and so on. Basically, no one can properly report it.

And yeah, most cryptos can be traced if the IRS is greedy enough, which they probably are. Protip: Spoof all your transactions by using a mixer. They can't prove you ever had the money, other than possibly the fact that you bought it at some point. But then again, what you do with your taxed money is your business.

Can't speak for the US, but in most countries, crypto counts as investments. So basically, the same laws apply as for stocks and such. So if you've done a loss, you can actually deduct that.
 

mindlessobserver

True & Honest Fan
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I doubt they could tax the bitcoin transaction themselves, but if you converted your magical internet money into dollars they probably can trace that and demand the iron price.
 

Xarpho

Useful mask for exploring the Internet
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I wonder if Josh got one of these. But then since he's not currently in the US that probably muddles things further.
I'm sure the number of American taxpayers that use crypto numbers more than 10k. People like Null take every avenue to avoid something like this, so I guess those that get targeted are casual users who have their real names attached to cryptocurrency.
 

Duke Nukem

Leader of the Anti-Chad Extermination Squad
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And they really think anyone will snitch themselves out? Fucking A+ IRS.
It's not like they don't steal enough of other people's money to waste on idiotic bullshit to begin with. Autistic manchildren's Lego sets are the least of our worries there, by the way.
 

l45ri

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If I was from the USA, (I'm European) I'd pay someone from 3rd countries to make Wirex account for me and then I'd use the card to cash-out!
 
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