IRS is ‘setting the trap’ for bitcoin and virtual currency investors on 2020 tax form
The Internal Revenue Service (IRS) is making it harder for taxpayers to conceal cryptocurrency transactions — whether intentionally or not — by adding a new question about it near the top of the new Form 1040.
The form released last week asks: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The only option is to mark yes or no.
If you answer inaccurately, you could find yourself in hot water with Uncle Sam who is rooting out tax evaders, tax professionals warned.
“When you sign the form, it’s under the penalty of perjury,” said Ryan Losi, a certified public accountant and executive vice president of PIASCIK, a tax firm. “The IRS is just gathering the data, changing the forms to expressly say you did or didn’t, and setting the trap, so in the coming years, the hammer can come down.”
‘The IRS is making it clear...’
Since 2014, the agency considers virtual currencies as a capital asset that must be treated as a property when it comes to taxes. Similar to stocks or bonds, any gains or losses from the sale or exchange of cryptocurrency is taxed as a capital gain or loss. Any income generated from mining bitcoin or other cryptocurrencies is also taxable.
But the IRS has been investigating for years to determine how many crypto investors have been under-reporting their holdings.
In 2018, Coinbase — the largest custodian of virtual currencies — was forced to disclose information on 13,000 user accounts
under an IRS summons. The agency also
sued to force Bitstamp to release more information on a taxpayer who had requested a $15,475 tax refund in an amended return.
The IRS included the same question on the 2019 tax return, but it was placed on top of Schedule 1, used to report certain additional income or adjustments to income, according to Lewis Taub, a certified public accountant and director of tax services at Berkowitz Pollack Brant Advisors + CPAs. The problem was that not many people file Schedule 1 with their return, he said, so the agency moved it to the first page of the tax return.
“In my view, the IRS is treating omitted virtual currency transactions in the same manner it pursues foreign bank accounts of U.S. taxpayers,” Taub said. “By asking the question on the top of the first page of the return, the IRS is making it clear that any income from gains or losses from virtual currency must be reported on the return.”
The instructions that go with the Form 1040 explain how and when you must report your virtual currency holdings and transactions.
But cryptocurrency can be tricky, Losi said, because some people use their virtual currency account as a payment account — for instance, buying a Starbucks latte with bitcoin. But if you completed that purchase using gains from your cryptocurrency investments, that would be a taxable event, Losi said.
“That would go on Schedule D of the 1040,” he said.
But simply holding virtual currency doesn’t mean you need to be taxed on it.
“If you acquire the virtual currency and haven’t spent it or exchanged it out for other currency, you don’t have a triggering event for tax purposes,” Losi said. “It’s an unrealized gain.”
The Internal Revenue Service (IRS) is making it harder for taxpayers to conceal cryptocurrency transactions.
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They did it in 2017 with ICOs. And kept it going throughout the bear. If our fucked up government tries to ban us from DEFI, the DEFI game will still blow up without us.
modernconsensus.com
