Crypto Tax Expert, Clinton Donnelly, and Crypto Influencer, Charlie Shrem discuss crypto taxes, the IRS, and why every virtual currency owner has to confess “Yes” or “No” to the IRS.
In crypto, there are big fish, and there are small fish, find out the difference between the two.
Interview Video with Charlie Shrem (Transcribed): Part 1, Virtual Currency Owners Have to Confess to the IRS
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In part 1 of our multi-transcription series with Charlie Shrem, Clinton and Charlie discuss why starting in 2020, every owner of virtual currency has to confess “Yes or No” under oath.
[Charlie Shrem] What’s going on starting in 2020 is that every taxpayer has to confess under oath yes or no if they’ve dealt with cryptocurrencies in the past year?
We have a lot of useful nuggets of information. Honestly, after doing this show, I feel a lot better, and you should, too, when you listen to this show.
A great return defends you, and a good crypto tax return is one that is not easy to prepare but a guy like Clinton Donnelly can. When you finish this show you’ll learn how to do it on your own or you’ll be confident enough to give him a call.
He’s got a very, very good attitude about taxes, he wants to work with you, and he wants everyone to do it the right way. But at the same time realizing that you shouldn’t pay the IRS one more cent than you legally are obligated to.
If you’re buying, selling, or holding crypto, you are low-hanging fruit for the IRS. For many years I’ve been waiting for a good solution where I can be proactive in my taxes but more importantly to sleep at night.
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This is the most important episode you’re going to listen to on this show.
Tax season is coming up.
And why that’s important is because:
"If you're in crypto, if you buy, sell, trade hold, do anything Bitcoin or crypto-related, this episode is extremely important."
We’re going to talk about all the subjects and conversations you’ve been purposely ignoring.
Or that you’ve been dreading with anxiety.
Now, our guest today, Clinton Donnelly.
The New Tax Requirements for Virtual Currency
"Clinton, thank you so much for coming on the show. You are the best crypto tax return preparer in the business. You have the cojones to do what every other CPA doesn't. The CPAs that I've talked to have turned me down."
Thank you for coming on the show, and thank you for doing what you’re doing.
[Clinton Donnelly] I am so glad to be here, Charlie.
"I'm passionate about helping people because there's just such a lack of understanding on how to do a great crypto tax return, and it makes every crypto trader vulnerable. So I'm glad we can be talking and letting people know."
[Charlie Shrem] There’s a lot of ambiguity; there’s a lot of mystery, complication when it comes to taxes not related to crypto. So we have a lot to cover, let’s get right into it.
The first thing on everyone’s mind that they’re thinking about right now is starting in April 2020, as of April 15th, when they have to report taxes. You have to say “Yes or No,” and it’s under oath.
And that’s such a small question. Yet, my mother-in-law may have to say “yes” because I’ve opened up a wallet for her and given her $100 worth of Bitcoin, right?
And now she’s going to be added to a list of all crypto holders in the country? How is that legal? How is that constitutionally legal?
[Clinton Donnelly] Well, yes, the IRS has put a question into schedule one, which is a part of Form 1040, where you list your income.
It’s a question that’s at the top; you can’t miss it. It says, “Did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currencies during the year?”
Virtual currencies are their word for cryptos. And this is a sweeping thing, and it’s yes or no.
[Charlie Shrem] Airline miles too.
[Clinton Donnelly] Yeah, that’s true. So there are two things you can do here.
I think it’s a violation of our first amendment, fifth amendment, and eighth amendment rights, and I’ve written a letter. I sent it to the IRS protesting this, but hey, it’s not going to take the question off.
Once you’ve checked yes, you go on a list of the people who are crypto traders, and guess what? If you were a crypto trader in 2019, the odds are pretty high you were a trader in 2018 and 2017. So now you’ve put yourself on the list that they can go back and look at how you reported in 2017.
Did you report crypto gains?
Did you report anti-money laundering forms in 2018 and 2017?
This is about their compliance at the IRS now, and it is getting very sophisticated.
It’s all data mining driven, artificial intelligence, and it’s just so easy to shake down who the big traders are and go after them.
People think the IRS is going to go after them by calculating all these capital gains and their transactions. No, no, they take a whole different approach at coming after people, and it’s so crucial for people to protect themselves.
READ MORE: How are Cryptos Reported on Anti-Money Laundering Forms?
In crypto, there are big fish and there are small fish, so let's separate the two.
[Charlie Shrem] Maybe you want to talk about that first, and then we can hear about what they do?
[Clinton Donnelly] That’s true. Everybody should consider if in the IRS’ eyes you are a small, medium, or large fish?
A small fish would be if the most you ever had in the markets were say, no more than like $20,000 -$30,000.
You’re small, and those people are hyper conscientious, and they want to do the right thing. But fixing your tax return is so minor, it’s going to generate such little income to the IRS, that they’re not going to go after you.
"We have a service for small fish called cryptotaxaudit.com. You can get the protection that someone's going to defend you if you ever get that letter from the IRS about how you reported cryptos."
You can check it out.
READ MORE: Introducing Crypto Audit Defense with CryptoTaxAudit
What’s a Big Fish When It Comes to Virtual Currency?
But if you’re a large fish, you have much more exposure.
"The IRS wants to go after big fish because the rewards are much bigger."
"You're a big fish if you had $100,000 or more at peak at any time in the market and mainly if you are trading on foreign exchanges, which most people did."
It’s easy for the IRS to identify you and come after you.
They sent out letters to large fish in August of this past year, basically a letter saying, did you report your cryptos?
They called it an educational letter. I have maybe 15 clients who received these letters, and it’s amazing they all have million-dollar or more holdings.
The IRS knew who the big fish were. A lot of these people, along with one of my clients, did all their trading overseas, so the IRS knew they were big fish overseas.
"I wrote a book about this, Why Crypto Traders Are Low-Hanging Fruit For The IRS, and it gets into a lot of details. But if you're a large fish, it's vital when checking this new question that you have a bulletproof tax return."
You need to be rock solid because the IRS has a long time to come after you.
Your statute of limitations, if you filed it correctly, is six years. But likely, 95% of people haven’t filed it correctly, and therefore, their statute of limitations is now open forever.
Protect yourself from the IRS with a CryptoTaxAudit membership.
Watch the Video for the Full Interview
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