All American crypto traders should know that the IRS is gearing up for a large compliance campaign (read crackdown) on crypto traders.
The IRS Commissioner 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.”
I have 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.
Why is the IRS cracking down on American crypto traders are?
During the run-up of prices in 2017, 46% of crypto taxpayers chose not to even report their gains on their tax returns. Others reported some but not all. Almost none submitted the required anti-money laundering annual reports about their trades with non-U.S. persons. All of these are subject to taxes and assessment. The IRS is looking at a massive harvest possibly bigger than any compliance campaign they have ever had.
How does the IRS know who the crypto traders are?
The short answer is that the IRS pretty much knows who all the U.S. cryptotraders are. Sign up for the subsequent emails. I will explain how the IRS came by this knowledge. (Hint: Information sharing between government agencies.)
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 from tax evasion 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 [criminal investigation] 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 and goes up quickly.
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 their time.
What if I would owe the IRS more money than I have?
This real fear can be mitigated several ways including filing for 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?
Sign up now to receive several emails explaining the above topics. It is urgent for all American crypto traders to be prepared for the IRS compliance crackdown. The information you receive with these emails will inform you greatly how to protect yourself.
Clinton Donnelly, LLM
Footnotes show that the I’m quoting authorities and not making stuff up.