The IRS is sending out letters to crypto traders claiming they misreported their income

[Polycount]

If there's one thing many Americans fear more than criminals or a lengthy prison sentence, it's the Internal Revenue Service (IRS). There are few things worse than an audit, so most US citizens do their best to avoid them when possible -- in general, that means paying your taxes properly and on time. Unfortunately, if you invest in cryptocurrency, things become an awful lot more complicated.

Some crypto investors found that out the hard way recently, according to a report from Coindesk. The site says some taxpayers have recently received letters from the IRS stating that they owe some pretty hefty sums due to improperly reporting (or failing to report) income accrued from crypto returns. One letter claimed a taxpayer owed "nearly $4,000" for the 2017 tax year.

Though there are undoubtedly many legitimate cases where American citizens have failed to pay taxes on cryptocurrency earnings, there's also the potential for mistakes to occur on the part of the IRS (or the financial institutions that feed information to the organization).

Coindesk says one letter recipient reported $0 in crypto revenue -- perhaps due to sudden and dramatic value drops that are common in the industry -- but received a notice from the IRS stating that he earned $12,000 from crypto transactions. While it's obviously possible that this recipient misreported his income, there could be something else going on.

As Coindesk theorizes, these "discrepancies" could be occurring due to crypto exchanges issuing 1099-K forms instead of 1099-B forms. 1099-K forms, the outlet says, may lead to many transactions being reported as revenue and not potential losses (which are common in the crypto market).

"The amounts on the form, what they're doing is if I make a trade for $100,000 on a platform, I buy 1 bitcoin for $100,000 and I sell it a couple weeks later for $90,000 I could have a $10,000 loss," tax attorney Justin Woodward told Coindesk, as an example. "but I have a 1099-K that says I received $90,000."

Whatever is truly going on here, it's clear that investing large sums of money into cryptocurrencies -- whether you make a profit or not -- is an even riskier decision than previously thought. Until regulators and the IRS are able to catch up with the latest crypto technologies, tax demand letters (such as the ones mentioned above) will likely continue to be sent out.

Of course, citizens are free to object to these letters, and should certainly do so if the scenario outlined above by Woodward happens to them. However, if you choose to do so, you'll need to provide detailed documentation that proves your stance.

Middle image credit: CBS News

Permalink to story.

https://www.techspot.com/news/81513-irs-sending-out-letters-crypto-traders-claiming-they.html

 

[Evernessince]

It should be noted that the IRS is mostly only able to peruse personal accounts as the agency is continually stripped of funding and employees and incorrect tax bills are likely the result of lack of employees for what has been a large change in taxes during this administration. The republicans have made sure the IRS does not have the resources to take big corporations to court anymore and it paints the IRS as the bad guys by perusing personal cases like this to continue to push for cuts to the agency. In the end who the IRS goes after is decided by the policy set forth by the US Treasury department and the IRS comissioner, who are appointed by the president and approved by the senate respectively. Given that the Republican controlled senate has green lighted multiple known foreign agents already, I have little faith in their ability to judge people on anything other then party. The only public policy the current IRS commissioner has set forth unsurprisingly is his desire to cut an additional 18% of the IRS's workforce. This is the republican calling card, enfeeble a government agency to make it appear ineffective or run it into the ground with bad policy making. Gain public sentiment from said policies to strip government agency. Profit from the lack of regulation and enforcement from corporate donors.

 

[ShagnWagn]

How is the IRS even able to track bitcoin?

 

[Udelh579]

How is the IRS even able to track bitcoin?

Seems like traders used their credit/debit cards for these operations. I don't think IRS monitors bitcoin purses.

 

[Uncle Al]

The tracking of bitcoin's by the IRS has primarily been through 2nd and 3rd hand information. To date there is no evidence of them being able to "hack" into transactions so their threats really don't have any teeth in them UNLESS they are able to find a sympathetic judge that uses or allows circumstantial evidence and, if you've been following any of it, circumstantial evidence has been given a LOT more leverage than it once did. Many have been convicted on circumstantial evidence alone. Really sad to see how far our legal system has deteriorated ......

 

[trparky]

Really sad to see how far our legal system has deteriorated ......

Oh really. I see this as people who were trying to cheat their way out of paying taxes finally got justice. All of us have to pay taxes. How else do you think public services get the funds to operate? That's right... TAXES! If you don't want to pay taxes then get off my roads that were paid with my tax money.

 

[retsxel]

It's called due process. IRS is not immune. THEY have to PROVE their case, in a court of law before any penalties can be enforced. That of course presumes that said citizen knows & understands their rights and defends them.

 

[Theinsanegamer]

Really sad to see how far our legal system has deteriorated ......

Oh really. I see this as people who were trying to cheat their way out of paying taxes finally got justice. All of us have to pay taxes. How else do you think public services get the funds to operate? That's right... TAXES! If you don't want to pay taxes then get off my roads that were paid with my tax money.

Except that justice is horrifically flawed. The IRS has no idea whom has how many bitcoins or where they ended up, unlike stocks or other capital gains.

That isnt justice, that is strongman government. No different then you screaming "get off of my roads" when you cant prove the people in question havent paid their taxes, or that any tax fraud has been committed. Those who would use justice as an excuse to act as strong men are pathetic.

It should be noted that the IRS is mostly only able to peruse personal accounts as the agency is continually stripped of funding and employees and incorrect tax bills are likely the result of lack of employees for what has been a large change in taxes during this administration. The republicans have made sure the IRS does not have the resources to take big corporations to court anymore and it paints the IRS as the bad guys by perusing personal cases like this to continue to push for cuts to the agency. In the end who the IRS goes after is decided by the policy set forth by the US Treasury department and the IRS comissioner, who are appointed by the president and approved by the senate respectively. Given that the Republican controlled senate has green lighted multiple known foreign agents already, I have little faith in their ability to judge people on anything other then party. The only public policy the current IRS commissioner has set forth unsurprisingly is his desire to cut an additional 18% of the IRS's workforce. This is the republican calling card, enfeeble a government agency to make it appear ineffective or run it into the ground with bad policy making. Gain public sentiment from said policies to strip government agency. Profit from the lack of regulation and enforcement from corporate donors.

Nobody cares about your political opinions. The IRS has also been equally underfunded and incompetent when under democratic control. Nobody high up wants the tax service to be effective, they'd have to start paying their taxes then.

 

[ShagnWagn]

Really sad to see how far our legal system has deteriorated ......

Oh really. I see this as people who were trying to cheat their way out of paying taxes finally got justice. All of us have to pay taxes. How else do you think public services get the funds to operate? That's right... TAXES! If you don't want to pay taxes then get off my roads that were paid with my tax money.

They are not "your" roads. They are "our" roads. If they pay for fuel (which includes road tax), they have a part in payment of those roads. If they do not pay taxes, and only use electric vehicles, then you may have a case. If they use dyed diesel fuel (only meant for off-road use - does not include road tax), which is illegal, you can also use that against them.

 

[trparky]

I'm simply using roads as an example of a public service that is paid for by taxes. Again, if you don't pay taxes you should not be using said public services that are funded by taxes.

Again I come back to the simple statement... How do you think public services get the funds to operate? That's right... TAXES!

I absolutely despise anyone who tries to not pay their fair share of taxes. I pay taxes, you pay taxes, EVERYONE should pay taxes!

 

[Evernessince]

Nobody cares about your political opinions. The IRS has also been equally underfunded and incompetent when under democratic control. Nobody high up wants the tax service to be effective, they'd have to start paying their taxes then.

Clearly you do or else you wouldn't have bothered to reply. Don't try to whitewash this issue, there are a few democrats the perpetrated the same thing but the volume of republicans has been immensely more. Like I said, this has little to do with personal taxes and more to do with corporate taxes.

 

[retsxel]

I absolutely despise anyone who tries to not pay their fair share of taxes. I pay taxes, you pay taxes, EVERYONE should pay taxes!

I agree 100%. However, the IRS makes mistakes once in a while and they need to be more willing to investigate when the potential of such is present.

 

[ShagnWagn]

I'm simply using roads as an example of a public service that is paid for by taxes. Again, if you don't pay taxes you should not be using said public services that are funded by taxes.

Again I come back to the simple statement... How do you think public services get the funds to operate? That's right... TAXES!

I absolutely despise anyone who tries to not pay their fair share of taxes. I pay taxes, you pay taxes, EVERYONE should pay taxes!

There are plenty of loopholes to basically not have to "pay" (out) taxes, but they are legal.

Many people believe it is unconstitutional to force people to pay taxes: https://en.wikipedia.org/wiki/Tax_protester_constitutional_arguments

 

[trparky]

Many people believe it is unconstitutional to force people to pay taxes: https://en.wikipedia.org/wiki/Tax_protester_constitutional_arguments

How else would a government be able to function without money to operate with?

 

[JaredTheDragon]

Imagine still even believing in the IRS in 2019. It's like people never even heard of the NRO, DHS, or the CIA either.

Imagine even believing in human beings existing at this point. Candy Land stuff, guys.

 

[DelJo63]

The IRS collects income statements on transactions. It's the tax payer's responsibility to report the Cost basis and the net value that results. If the tax payer fails to file that information, what would you expect to happen??

btw: Form K is used for share holder distributions from corporations.

 

[ShagnWagn]

How else would a government be able to function without money to operate with?

I wasn't meaning no taxation at all, but provided an example of. By providing services for money such as everyone else has to do. Not forcing us, and to make us pay for things we didn't want to or never need/use. Such as I am being forced to pay people to kill their own babies (abortion, or whatever you want to call it to feel better).

The Founding Fathers believed in a very limited government. Why? Because of the whole reason it split into its own country. The king had become so powerful and overwhelming (control) that the U.S. wanted independence - minimal government. We are being extorted for SO much money that it is being blown on ridiculous and stupid reasons.

http://www.whatwouldthefoundersthink.com/the-founders-believed-in-limited-government

We don't own anything any more. The government can and will steal everything we own if we don't constantly give tax money.

 

[NightAntilli]

Many people believe it is unconstitutional to force people to pay taxes: https://en.wikipedia.org/wiki/Tax_protester_constitutional_arguments

How else would a government be able to function without money to operate with?

The US government worked fine without income tax 150 years ago. The first income tax was used to fund wars. It was obviously a test to see if people would accept it. Once people accepted that, they did the same thing for the next war about 100 years ago and never abolished the income tax. Governments were working fine without it.

That's the layman's shallow version. It's more complicated than that, involving the privately owned Federal Reserve etc. in case of the US.

I'm simply using roads as an example of a public service that is paid for by taxes. Again, if you don't pay taxes you should not be using said public services that are funded by taxes.

Again I come back to the simple statement... How do you think public services get the funds to operate? That's right... TAXES!

I absolutely despise anyone who tries to not pay their fair share of taxes. I pay taxes, you pay taxes, EVERYONE should pay taxes!

I guess you feel equally accountable and responsible for the 'public service' of bombing innocent children in foreign countries with your tax money, and that everyone should pay for that?

 

[trparky]

The US government worked fine without income tax 150 years ago. The first income tax was used to fund wars. It was obviously a test to see if people would accept it. Once people accepted that, they did the same thing for the next war about 100 years ago and never abolished the income tax. Governments were working fine without it.

How would employees of said government be paid if not for taxes? The money has to come from somewhere, right? Departments like the EPA, DOT, Treasury, Secret Service, FBI, etc. People who work for them have to be paid and that money comes from, you guessed it... TAXES!

I guess you feel equally accountable and responsible for the 'public service' of bombing innocent children in foreign countries with your tax money, and that everyone should pay for that?

Uh nope, don't be putting words in my mouth.

 

[NightAntilli]

How would employees of said government be paid if not for taxes? The money has to come from somewhere, right? Departments like the EPA, DOT, Treasury, Secret Service, FBI, etc. People who work for them have to be paid and that money comes from, you guessed it... TAXES!

Note how I specifically said income tax, not tax in general.

Uh nope, don't be putting words in my mouth.

Of course you wouldn't. It's easy to shift that to someone else when you're so happy to fund the wars with your own dollars.