Did you think your Cryptocurrencies were immune to the eyes of the IRS?

Since 2014, The IRS has been asking taxpayers about their crypto-currencies to make the untraceable asset exchange traceable. After Bitcoin’s debut in 2009, several crypto coin-millionaires were created and the need for oversight was quickly brought to the attention of the IRS. Anything that is considered “a digital representation of value” that is “as a unit of account, a store of value, and a medium of exchange” is under the microscope. In years past, the only crypto capital gains you were taxed on, were the ones you reported on your tax return. Because crypto coin exchanges do not report or send out 1099s, investors were able to mask their entire coin net worth with little to no consequence. The IRS continues to re-issue forms and information to help taxpayers who participate in such transactions to better understand their reporting obligation. One of the more recent pieces released in 2019 includes:

"The IRS is committed to helping taxpayers understand their tax obligations in this emerging area," said IRS Commissioner Chuck Rettig. "The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don't follow the rules."

What does this mean for Taxpayers?

One of the major appeals to many cryptocurrency investors is the lack of scrutiny by outside entities such as the IRS, Banks, and the United States Treasury. This created a belief that not only investments could be hidden, but if an employer is paying their contractors or employees with cryptocurrency, they could evade several employer obligations while simultaneously enabling their employees to bypass state and federal taxes. However, with the most recent John Doe Summons (released March 22nd, 2020), we know that the IRS is now hiring third parties to investigate and track down investors that are dodging capital gains taxes and any employers attempting to run their business on crypto. While the current John Doe Summons is for Circle Internet Financial Inc, its predecessors, subsidiaries, divisions, and affiliates, including Poloniex LLC, the summons sends a clear message that the IRS and Department of Justice are and will continue to work hard to ensure taxpayers are in full compliance in regards to their use of virtual currencies. 

Failing to accurately report your cryptocurrency could result in fines up to $250,000 and even prison. While examining your 2020 tax returns, we recommend double-checking ALL your investments and reporting them accurately to ensure you don’t pay such a hefty fine. By the way, there is now a question on your form 1040 asking if you had any crypto transactions..