All American crypto traders should know that the IRS is gearing up for large compliance campaign (read crackdown) on crypto traders.
The IRS commission said in November 2018, “You think the IRS doesn’t know [who the cryptotraders are]? The IRS will have more information about them than you can possibly imagine.”
Clinton Donnelly has written a book to show traders how to protect themselves. He is a Enrolled Agent with a law degree experienced in defending taxpayers from the IRS at examinations, audits, and appeals.
How does the IRS know who all the American crypto traders are?
During the run-up of prices in 2017, many traders chose not to even report their gains on their tax returns. Others reported some but not all. How much risk do non-reporters and under-reporters face? The short answer is that the IRS pretty much knows who all the U.S. cryptotraders are. I will explain if you sign up for more information.
How will the IRS compliance campaign happen?
We can have a good idea of how it will be done from their past campaigns and official pronouncement. They will be using data analytics. This technique enabled the IRS to bring in 10 times more money in 2018, than in 2017. “We prioritized the use of data in our investigations in fiscal 2018,” said Don Fort, Chief of [IRS Criminal Investigation]. “The future for CI must involve leveraging the vast amount of data we have to help drive case selection and make us more efficient in the critical work that we do. Data analytics is a powerful tool for identifying areas of tax non-compliance.”
Must crypto traders submit anti-money laundering reports?
The law requires taxpayers to submit various reports annually when engaged in financial transaction with non-US persons. Since exchanges anonymously match buyers and seller, the taxpayer must assume the counterparty to his trade is a foreign person. Barely any crypto traders filed these anti-money laundering reports. The exposure is massive. The IRS knows it. The penalty for non-reporting starts at $10,000.
Can past returns be corrected to protect against the IRS compliance campaign?
There are several tax amnesty procedures available that eliminate penalties when correcting past filing mistakes. However, these options go away once the IRS issues the first letter challenging your past returns. So the time to act is now. The process is surprisingly easy and affordable.
Why hasn’t the IRS begun the crackdown already?
Why doesn’t the IRS not worry about the statute of limitations? It is because under-reporting and non-reporting crypto suspends the statute of limitation protections. They can take as long as they want.
What if I would owe the IRS more money than I have?
This real fear can be mitigated several ways including using like-kind exchange (up until 2018), claiming losses from scams and failed exchanges, reporting mining income and all expenses, amending past returns, structuring multi-year payment plans, or offering a compromise to the IRS.
What can you do?
Clinton Donnelly, LLM