IRS Proposes to Backdate Tax Payments of Digital Currencies
The Internal Revenue Service (IRS) has sent communication to several market participants discussing backdated tax settlements in the digital asset trade. The IRS posted on its website that investors’ federal returns differ from the information provided by cryptocurrency exchanges. As such, the agency is seeking traders’ contribution on amended tax returns using profits from digital currency activities as a reference. In the letters, the IRS blames these errors on exchanges, rather than individual investors.
Despite the dynamic digital market, the notices prove that IRS is devoted to enforcing tax compliance. The institution’s criminal inquiry boss Don Fort announced that the organization would soon go public about tax evaders. Fort reckoned that digital coins threatened tax collection. Depending on the recipient’s information, these letters come in different versions. In the first one, the recipient must sign a declaration agreeing with the tax regulations that treat virtual coins as investments, much like real estate holdings and stocks. The service’s principle Chuck Rettig urges citizens to give the letters the weight they deserve. The IRS, he adds, is developing the digital market and this includes sectors like data analytics.
Data from CoinBase
The recipients’ names seem to have come from a file with 13000 accounts whose owners have sold, transferred or received coins with a minimum value of $20,000 from 2013 to 2015. In February 23, 2018 Coinbase notified a section of its customer base regarding summons from the IRS of a court order to disclose user identities, addresses, past transactions and birth dates.
The IRS had initially sought all records, inclusive of third party information with regard to transactions related to bitcoin over the period between 2013 and 2015 by Coinbase customers based in the United States. The IRS had noted the colossal wealth gained by some taxpayers within just a few years which was not commensurate to the taxes submitted. Furthermore, some cryptocurrency users acknowledged publicly that they preferred to use bitcoin so that they could avoid tax reporting requirements. Thus the IRS felt that it had a legitimate mandate to investigate such taxpayers.
The second round of tax warnings by the IRS to cryptocurrency investors emphasize that it may not entirely be the fault of the tax payers. The IRS acknowledges that the trading exchanges may have made the errors. This shows the intensity with which the revenue entity is employing in its focus to ensure tax compliance on digital currencies. According to Don Fort, cryptocurrencies and digital currencies are a significant threat in enhancing tax collection. He said that the revenue agency plans to initiate cases of criminal tax evasion.
According to the CP 2000 notice, the details regarding income and payment information that the IRS has on file does not tally with the information reported on the tax returns. The agency notes that such a discrepancy would cause an increase or decrease in the tax by the tax payers, or alternatively not alter it at all.
Through the notice of the tax warnings, the IRS has encouraged tax payers to:
- Read the notice carefully.
- Complete the notice Response form on whether a tax payer agrees or disagrees with the notice.
- If a tax payer agrees with the notice, they should follow the instructions to sign the Response form and return it to the IRS in the envelope provided.
- Contact the business or person reporting the information, if the information they provided to the IRS is wrong and ask the person who reported the information to send a corrected statement, a copy of which should then be sent to the IRS.
Featured Image via BigStock.