he United States Internal Revenue System (IRS) has sent a second wave of letters to cryptocurrency traders they believe have misreported income from their crypto exchange transactions.
Last month, an initial wave of letters were sent to traders with warnings that they may have potentially incorrectly filled their taxes. The second wave appears to be targeting traders that the IRS was able to collect concrete evidence via the exchange platforms they use.
The IRS has been slowly and carefully collecting the financial information of traders from exchanges and slowly laying out guidelines for taxation. In 2016, Coinbase was ordered by the IRS to hand over transaction-related data on more than 14,000 of its customers involved in buying, selling, sending or receiving BTC.
April 11, 2019 - The IRS (Internal Revenue Service) has yet to provide a clear guideline regarding basic reporting requirements for tax payers that use digital currencies. (Read more)
The IRS sent out different letters, each coded by number:
The letter simply states that the addressee has not reported all income from virtual currencies based on information provided by exchanges. The letter gives a specific amount of time to respond before action is taken by the IRS, usually the addressee will be audited.
Additionally, the IRS wants an explanation of why the incomes from bitcoin and other virtual currencies was not reported. If the IRS does not see the reasoning as viable, they may choose to seek legal action.
The CP2000 letter specifically targets those the IRS believes confidently have earned specific amounts due to transaction records provided from their chosen crypto exchanges. Chandan Lodha, co-founder of tax software provider CoinTracker, told CoinDesk that the IRS has been sending ‘CP2000’ notices to some customers, indicating they are potentially on the hook for revenue they did not report.
“The IRS is sending out these other notices and those are kind of like warning letters of varying degrees of how threatened they were,” - Lodha said of the earlier three letters.
“CP2000 is a slightly different letter. Basically what it says is ‘hey we have a report from one of the financial institutions you use and the amount they reported to us the IRS is different than the amount you, the taxpayer, reported and this is the amount you owe’ and it’s a 30-day letter meaning you have to respond in 30 days.”
While many customers received these letters in July and August, it is a good idea to remain vigilant in case a letter like this shows up at your door. If you find yourself in this situation contacting a tax lawyer is the best first step.
Many bitcoin and virtual traders have used cryptocurrency for its decentralization, which led many to believe that national tax laws didn’t apply.
While this was more than likely true early on in bitcoin’s existence. The bitcoin price has changed and experienced an incredible boon in the last few years to the economic benefit of its users.
The IRS possibly sees this as an opportunity to collect.
Expected to issue new guidance on crypto taxes in the future, the IRS has not changed its laws since 2014. With the IRS now in full swing to enforce U.S tax law on cryptocurrency customers it is only a question of when, for other nations tax enforcement bureaus to follow suit. Will this influence the bitcoin price?
As Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes”.
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