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U.S. Crypto Holders Facing IRS Tax Penalties Look For Answers

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U.S. Crypto Holders Facing IRS Tax Penalties Look For Answers

Foreword: The Internal Revenue Service (IRS) classifies virtual currencies such as Bitcoin (BTC) and altcoin as property. As such, the IRS applies general tax principles applicable to property transactions, to cryptocurrency. When cryptocurrency is received, the fair market value at the time of receipt determines the amount realized. 

The basis is considered on value at the time of receipt. The exchange or sale of digital currencies, or the use of digital currencies to pay for goods and services, or for holding as an investment, has tax consequences with potential tax liabilities. The law is applicable to businesses and individuals using virtual currencies.

10,000 IRS Letters Sent Out to Cryptocurrency Holders

The IRS recently notified 10,000 cryptocurrency users regarding taxes which may be owing on their virtual currency holdings. The warning letters serve to underscore the importance of meticulous reporting requirements vis-a-vis cryptocurrency. That thousands of virtual currency holders may have broken federal tax laws has not gone unnoticed in the broader global community. 

At a recent G-20 summit in Japan, finance ministers and central bank governors signed on to enforce the rules and regulations of the FATF (Financial Action Task Force). These constructs were implemented to guard against tax evasion, money laundering, and the financing of terrorist activities. 

That the G-20 nations have committed to these standards is important, since it has broad ranging implications for virtual currency users. For starters, privacy considerations will be impacted with these new reporting requirements. Regulators will now have strong oversight authority and users will be required to comply with IRS tax reporting. 

The raison d'être of crypto trading was anonymity, privacy, and separation from the authorities. That compliance measures are now forcing cryptocurrency exchanges and their users to toe the line is deeply troubling to many who may be culpable of not accurately reporting their crypto assets, ostensibly through no fault of their own.
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IRS Letters Send Shockwaves Through the Crypto Community

News of the IRS letters being sent out to thousands of cryptocurrency traders, investors, and users, is generating anxiety in the markets. There are 3 types of letters being sent out to account holders, notably Letter 6173 (the most serious of the letters), Letter 6174, and Letter 6174-A.

Recipients of Letter 6173 have just 1 day to respond to the IRS demand. It pertains to all cryptocurrency transactions entered into between 2013 – 2017, including the need to urgently report any underreported cryptocurrency transactions, or unreported cryptocurrency transactions. 

Letter 6173 requires immediate action on the part of the recipient. If the addressee fails to respond to the IRS, they may be subject to a tax audit. The letter details the documentation that is required by the IRS, and it is incumbent upon the receiver to provide accurate reporting of all cryptocurrency transactions over the said time. 

Many virtual currency users struggle with accurate tracking of digital currency transactions, since time, date, and value elements are difficult to ascertain. Accurate records of digital currency wallets, cryptocurrency exchanges, transfers to altcoin, and investments in ICOs are certainly possible through a new service provided by Bittax, but no other companies are currently operating in this niche space

Forms to Be Filed for Cryptocurrency Reporting
Non-compliance with IRS reporting requirements has severe consequences. In the US, several forms need to be filed when reporting virtual currency taxation. These include Form 8949 (sales and other dispositions of capital assets) for crypto you have traded, Schedule D (capital gains and losses), Form 1040 (individual income tax return), and Schedule C (profit or loss from business activity). 

Anyone holding $10,000 + of cryptocurrency at a foreign exchange will be required to file an FBAR form, along with Form 8938 which meets FATCA reporting requirements. Any underpayment of quarterly taxes for capital gains on virtual currency trading will require Form 2210. If your cryptocurrency holdings were compromised by theft, mismanagement, closure of the cryptocurrency exchange, or foreign regulatory powers, Form 4684 will need to be filed. 
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What To Do If You Received a Letter From The IRS?

Many cryptocurrency users are aware that capital gains on digital currencies need to be reported, but the issue is clouded by the complexity of tracking transactions records over time. IRS letters serve to exacerbate the anxiety users feel, making it all the more important to use a reputable blockchain-based tax calculator service. Fear of an IRS audit is a real concern for virtual currency holders. 

Bittax is a powerful software system that automatically computes cryptocurrency taxes payable to the IRS. The computing technology behind this blockchain-based software allows it to function as a tax calculator for accurate reporting purposes. With Bittax, clients can accurately generate a complete workup of all cryptocurrency transactions from day one. The software tracks the user’s transactions throughout the reporting period to ensure accuracy. 

The powerful software alerts clients to any incomplete information, anomalies or missing addresses. The tracking software scrutinizes a client’s transactions and indicates whether the records are tax compliant for the IRS. Additional benefits include the option to generate a comprehensive set of reports over multiple years, for one set price. This saves clients from having to pay for multiple annual reports. As the only cryptocurrency tax-compliant program on the market, Bittax is an essential resource for cryptocurrency traders, investors and users. 

 

This cryptocurrency tax platform is compliant with the highest international regulatory stands on virtual currency taxation.  With full report calculation capacities, and the ability to track, identify and report all virtual currency transactions, it has already proven itself an invaluable tool to traders. With maximum transparency in recording and reporting crypto transactions, the software can easily pinpoint precise records of every bitcoin (BTC) transaction ever made. The result is 100% compliance with the latest IRS requirements. 

Underreporting, nonreporting, or tax evasion have serious repercussions. Crypto investors who received letters will be informed about what is required of them with Letter 6173, Letter 6174, and Letter 6174-A. Tax lawyers recommend that clients amend their tax returns, pay the penalties, and count themselves lucky for having generated profitable returns on their cryptocurrency transactions.  The IRS has been working around-the-clock to put an end to crypto-based tax evasion, but rapid technological advancements left the agency wanting, until now. Fortunately. Bittax is a proven money-saver and it makes it easy to comply with IRS requirements, by staying ahead of these tax reporting deadlines.

Requirements for Reporting Cryptocurrency Capital Gains 
Now that tax compliance is a priority, and the head of the IRS criminal division (Don Fort) has described cryptocurrencies as a significant threat, it is extremely important that users comply with reporting requirements. In 2017, Coinbase was ordered to provide details of all individuals buying/selling $20,000 of virtual currency during any year between 2013-2015. To date, some 56,000 Americans have already fessed up and paid $11.1 billion in taxes to the IRS. While the tax agency is actively pursuing tax avoiders, and tax evaders, it appears that the objective is tax collection and not prosecution. 

Some of the IRS letters serve simply to inform users of their tax obligations while others adopted a much more stringent approach, with a deadline in hand, and a written response required. The broad-ranging timeline (2013-2017) requires comprehensive reporting of all crypto transactions under penalty of perjury. Robust cross checking of taxpayer information is being conducted by the IRS, making it all the more important to use sophisticated cryptocurrency reporting software capable of tracking all transactions, values, dates, and activity during the specified timeframe.
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Tax attorneys do not advise clients to amend their returns, since that is considered admittance of having committed a tax crime. Rather than facing the prospect of prosecution through non-compliance, users are encouraged to enlist the services of professional virtual currency reporting services to stay on the right side of the law. Voluntary disclosure programs are currently available to those who have engaged in willful tax evasion, but this is not without punishment. 

Many of the big fish have reported their virtual currency transactions, fearing punitive measures from the IRS if they don't do so. For the small-time crypto traders, amended returns are the preferred option. Those who are holding onto their digital currency are not required to file returns because no tax obligations have resulted from their holdings. Since cryptocurrencies are considered property, they are subject to capital gains taxes. It is imperative that users understand their reporting requirements well ahead of the April 15 deadline.

Image Sourced from Pixabay

Posted-In: crypto market IRSCryptocurrency Government News Regulations Markets General

 

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