IRS Warning Letters: Agency Scrutinizing Tax Returns to Information Received from Exchanges
The Internal Revenue Service (IRS) has been sending out a fresh round of letters to a select group of taxpayers, informing them that their tax returns do not match the information provided by exchanges. The report from Bloomberg, August 15, 2019, confirms that the information the IRS possesses was given to them by Coinbase after a court ruled that the exchange must provide the tax agency with information of those who purchase $20,000 or more of cryptocurrency.
IRS Shows Intent
The previous round of letters may have had a gentler tone to them, but the newest round going out has cryptocurrency investors legitimately worried.
While the letters are strongly worded and inform the resident that the information received from Coinbase doesn’t match their tax returns, the IRS acknowledges this fault may be on behalf of the exchange. In this case, the IRS may be encouraging individuals to provide adequate evidence to back up the claims on their tax returns.
As previously hinted by Charles Rettig, commissioner of the IRS, the agency is putting cryptocurrency compliance at the top of their agenda, including building tax fraud cases against several individuals in the United States.
Rettig has called cryptocurrency a massive threat to tax collection efforts and has stressed that the IRS will not be complacent and allow this to continue.
Some of the letters sent out simply informed the recipients that they may be unaware of the amount of tax due from them; others were given a deadline to reply to the IRS with detailed disclosures of their holdings from 2013 to 2017.
Institutional Reporting May Become a Norm
Since the IRS is now coming for blood, it makes sense for them to appeal to the federal government to aid them in collecting information on cryptocurrency investors just as they do for bank transactions.
In 2014, the IRS ruled that cryptocurrency would be treated as property rather than as currencies. Eventually, this cycled into a wider perception, leading most to refer to them as “cryptoassets” instead.
But there are many obstacles for financial institutions to start reporting information regarding cryptocurrency investing. For starters, they can only disclose the amount of fiat sent to an entity like Coinbase or Huobi. After this, it is up to the exchange to disclose detailed information regarding each individual’s holdings.