Note: Not all actions, advice, guidance, provided by the IRS are non-binding legally on the taxpayer.
The Beginning Of The IRS Cryptocurrency Timeline
2013 – 2015
The IRS served a “John Doe” summons on Coinbase seeking information from accounts “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-2015 period.
The IRS releases Notice 2014-21, a.k.a. Virtual Currency Guidance accompanied by several FAQs with references to several publications: “Taxable and Nontaxable Income,” “Basis of Assets,” “Withholding of Tax on Nonresident Aliens and Foreign Entities” and more.
December 12, 2014
Treasury Decision TD-9706 solicits comments on the proper reporting of virtual currency on as Specified Foreign Financial Assets on form 8938.
May 6, 2016
IRS & FBI announce legal victory of imprisonment for 20 years of founder of Liberty Reserve for money laundering. Liberty Reserve was a non-blockchain virtual currency.
November 8, 2016
The Treasury Inspector General for Tax Administration (TIGTA) warned IRS that better guidance needed on reporting tax implications of virtual currency transactions.
FAQs Are Non-Binding To The Taxpayer On IRS Cryptocurrency Timeline
July 26, 2017
IRS Taxpayer Advocate calls IRS FAQs a trap for the unwary. FAQs are non-binding.
The IRS reminded taxpayers that income from virtual currency transactions is reportable on their income tax returns. Wrongfully reported income tax could be seen as tax evasion and could include a fine of up to $250,000 or 3 years in prison.
IRS announces through the Withholding & International Individual Compliance Area: “U.S. persons are subject to tax on worldwide income from all sources, including transactions involving virtual currency.”
July 13, 2020
IRS release press release about achievements of the J5. A five nation task force to coordinate investigation and enforcement efforts in tax evasion including the area of virtual currencies. The J5 have built the FCInet as a decentralized virtual computer network that enables agencies to compare, analyze and exchange data anonymously. It helps users to obtain the right information in real-time and enables agencies from different jurisdictions to work together while respecting each other’s local autonomy. Organizations can jointly connect information, without needing to surrender data or control to a central database. FCInet doesn’t collect data, rather it connects data.
IRS Begins Sending Virtual Currency Education Letters On IRS Cryptocurrency Timeline
The IRS started sending the educational letters (6173, 6174, 6174-A) to taxpayers last week of July 2019. By the end of August, more than 10,000 taxpayers received these letters. Taxpayers’ names were obtained through various ongoing IRS compliance efforts.
October 9, 2019
The IRS releases Revenue Ruling 2019-24, providing further guidance on Airdrops and Hardforks.
October 9, 2019
The IRS publishes a list of frequently asked questions about virtual currencies. This document was revised again a few months later.
The IRS adds the Crypto Question to Form 1040 for 2019: At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency.
February 2, 2020
IRS & FBI announce Ohio resident charged with operating darknet-based bitcoin “mixer,” which laundered over $300 million.
The U.S. Government Accounting Office (GAO) published a report GAO-20-188 stating the IRS guidance in 2014 & 2019 was not clear as to which parts are authoritative and which parts were subject to change. IRS and the Financial Crimes Enforcement Network (FinCEN) have not clearly and publicly explained when, if at all, requirements for reporting financial assets held in foreign countries apply to virtual currencies (Forms 8938 and FBAR).
March 2, 2020
IRS & FBI charged two Chinese nationals with laundering over $100 million in cryptocurrency from exchange hack.
The IRS has invited crypto companies to discuss how they “balance taxpayer service with regulatory enforcement,” consisting of panels on technology updates, tax return preparation, and more.
IRS wants crypto tax software companies to help with crypto tax audits
IRS seeks contractors to uncover privacy coin transactions
July 22, 2020
IRS Criminal Investigation wins case. Man admits operating unlicensed ATM Network that laundered millions of dollars of Bitcoin and cash for criminals’ benefit
August 4, 2020
IRS and DEA announce American darknet vendor and Costa Rican pharmacist charged with narcotics and money laundering using virtual currency.
Crypto Tax Reporting Becomes IRS Top Priority On IRS Cryptocurrency Timeline With The New 1040 For 2020
IRS releases a draft for the new 1040 form moving the “Yes” or “No” virtual currency question which asks, “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency? Yes or No” from Schedule 1 to the top of the new 1040 form.
August 14, 2020
IRS begins second round of virtual currency education letters dated August 14, 2020.
August 28, 2020
IRS memo says that cryptocurrency earned from carrying out microtasks is taxable. In Chief Counsel Advice #202035011, the IRS outlined the government’s position on the taxability of convertible virtual currency received in exchange for microtasking through crowdsourcing or other similar platforms.
New Approach By The IRS To Use Rewards To Hack Crypto On IRS Cryptocurrency Timeline
September 4, 2020
The IRS offers reward of $625,000 to anyone who can “reliably produce useful results on a variety of real-world CI cryptocurrency investigations involving Monero and/or Lightning” reflecting a new approach by the IRS to use rewards to hack cryptocurrency, a field dominated by hackers. Proposals are due Wednesday, September 16, 2020, at 08:00 EDT.
September 8, 2020
The IRS’s criminal investigation department signed a $249,900 contract with blockchain analytics firm called Blockchain Analytics and Tax Software, LLC, to amplify crypto tracing tools.
September 30, 2020
The IRS awards a contract labeled “Pilot IRS Request for Proposal Cryptocurrency Tracing” for $625,000 to Chainalysis, Inc. to develop a tool that will crack privacy coins like Monero and/or Lightning.
Per the draft for the new 1040 Form instructions, anyone who sold cryptocurrencies, received airdrops, exchanged cryptocurrencies for goods, services, and other assets must report “yes” to the question:
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
The IRS latest update states that a transaction involving virtual currency includes:
- The receipt or transfer of virtual currency for free, including from an airdrop or hard fork;
- An exchange of virtual currency for goods or services;
- A sale of virtual currency; and
- An exchange of virtual currency for other property, including for another virtual currency.
The IRS also states users who held crypto in their wallets or transferred cryptocurrencies between their own wallets are not liable.
The draft instructions on Form 1040 are likely to be considered final unless unexpected issues require further changes.