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IRS Expects Surge in Crypto Tax Crime Cases as Tax Season Concludes

As the tax season draws to a conclusion, the Internal Revenue Service (IRS) of the United States is getting ready for the possibility of an increase in the number of cases involving crypto tax crimes. Guy Ficco, the head of the IRS’s criminal investigative division, has said that he anticipates an increase in the number of Title 26 crypto cases that will be prosecuted this year and in the years which will follow .

Over the course of many years, the Internal Revenue Service (IRS) has been conducting investigations into crypto assets, often as a component of bigger fraud cases, schemes, embezzlements, and money laundering operations. On the other hand, Ficco draws attention to a phenomenon known as “pure crypto tax crimes,” which are defined as infractions of federal income tax laws that are directly associated with cryptocurrency.

According to Ficco, these offences related to cryptocurrency might manifest themselves in a variety of ways, including the failure to disclose money derived from the sale of cryptocurrency or the effort to conceal the actual foundation of cryptocurrency assets. The Internal Revenue Service has already seen an increase in the number of instances of this kind and believes that there will be much more rise in the future.

The Internal Revenue Service (IRS) has been working with blockchain companies like as Chainalysis in order to solve the issues that are created by crypto tax evasion. Through this agreement, the agency is able to acquire important tools for analysing complicated crypto transactions, which helps in the identification and investigation of tax offences in a more effective manner.

Agents of the Internal Revenue Service are able to track money transactions and discover essential information about cryptocurrency ownership by using Chainalysis and using other technologies. Because of this partnership, tax offences using cryptocurrencies have been identified and addressed, which has proved to be an important advancement.

It should be brought to your attention that financial crimes using cryptocurrencies have also resulted in some of the greatest seizures that the United States government has ever carried out. Over the course of the last several years, the Internal Revenue Service’s Criminal Investigation division has significantly contributed to these efforts, further highlighting the agency’s dedication to the fight against crypto tax evasion.

On April 15, taxpayers will be filing their returns, and the Internal Revenue Service is getting ready to deal with the expected increase in instances of cyber tax crime. It is a reflection of the rising significance of digital assets in the wider financial environment that the agency is concentrating its efforts on ensuring tax compliance in the cryptocurrency market.

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EY Launches Crypto Tax Reporting App to Assist Businesses with US Tax Filings

Ernst & Young (EY) is launching a crypto Software as a Service (SaaS) to offer step-by-step guidance that assists with US cryptocurrency tax filings. The cryptocurrency application is a web-based enterprise-grade tax engine and is fully automated to support the crypto tax process.

The SaaS, EY CryptoPrep supports a number of major cryptocurrencies and exchanges and works by aggregating and reconciling transaction data. This then allows the engine to appropriate tax rules to deliver a detailed account of the capital gains or losses in crypto.

EY CryptoPrep provides a completed Form 8949 from the Internal Revenue Service (IRS) for all applicable tax years. This technology and service are available to EY’s clients based on EY TaxChat and EY Blockchain Analyzer as a managed service.

Marna Ricker, EY Americas Vice Chair of Tax Services said that their clients are increasingly holding and trading cryptocurrencies, which highlights the need for this new innovative solution to solve the complex issues surrounding crypto tax filing. She added:“The EY Foundry, our internal corporate venturing unit, created EY Crypto-Prep to modernize the crypto tax accounting process.”

The IRS keeps an eye on crypto tax evasion

The IRS has requested help from independent consultants to crack down on non-compliance in cryptocurrency tax.

The IRS sent out a Statement of Work (SOW) on May 12, 2020, soliciting private contractors to aid in auditing tax returns related to virtual assets.

In October 2019, the IRS announced the addition of a question to the US tax return form obligating citizens to disclose their cryptocurrency holdings as well as gains and losses.

However, the IRS has not clarified the 2019 crypto tax guidelines.

EY and tax

Dennis Post, EY Global Blockchain Tax Leader told Blockchain.News, “We basically see two developments where tax will be significantly impacted by blockchain (besides crypto). Firstly, we see that blockchain will help to create more robust tax systems, for example in the financial services sector (withholding tax) or in global trade (VAT, customs). At EY we are fully embracing the opportunity blockchain brings in reducing manual labor and paper-based processes, and we are in the process of developing blockchain platforms that solve tax problems. Secondly, we are building solutions that can connect to commercial blockchains to calculate the tax consequences of these transactions.”

IRS Updates 1040 Income Tax Form, Lays Traps for Crypto Tax Cheats

The US Internal Revenue Reserve (IRS) plans to update a question on the 1040 income tax form for 2020 that will require all US taxpayers to check a box if they have transacted any cryptocurrencies over the year.

A draft of the 2020 tax form has a question that asks taxpayers whether they have exchanged, sent, received, sold, or acquired any financial interest in cryptocurrency during 2020. Taxpayers would be able to check either a no or yes box.

The draft of the 1040 form indicates the question placed near the top of the tax form that reads: “At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency?”

The question was included in the 2019 tax form but was placed in a part of the document that not all taxpayers had to fill out. Now, it is moving to the 1040’s most important spot, just below the taxpayers’ address and name.

The 2020 tax form is about to ensure that all taxpayers who engage in crypto transactions report them and thus removes excuses for ignoring the tax rules on Bitcoin or other cryptocurrencies.

The tax agency’s simple trick would make it more difficult for taxpayers to avoid declaring their crypto assets. A tax law expert told the WSJ that the question would make it easier for the taxman to win cases if the returnees check the “no” and are later found to have held cryptocurrency.

The tax administrator’s move is a strong warning to many cryptocurrency holders who are not complying with the rule of law that they must file required forms and pay taxes.

Last year, the IRS added a similar question concerning taxpayers’ offshore bank accounts, which resulted in the agency receiving over $12 billion in taxes.

IRS Warning Crypto Holders

The tax agency is getting more serious about crypto tax compliance. Last year, the IRS sent warning letters to thousands of crypto holders who failed to pay the necessary taxes or improperly reported taxes in the virtual assets. People who own crypto assets in the US got these letters in their mailbox.

It is not known how the IRS got the user list. However, the list of names was obtained through “various ongoing IRS compliance efforts.” The agency may have relied on blockchain analytics software such as Palantir, Chainalysis, and Coinbase analytics to de-anonymize on-chain privacy coin transactions.

In 2018, Coinbase crypto exchange alerted 13,000 customers that it was complying that a court order to provide the IRS with information on accounts that had transacted at least $20,000 from the years 2013 to 2015. However, the IRS did not mention whether it obtained its mailing list from the Coinbase trading platform.

IRS treats all digital currencies like Bitcoin, Ethereum, XRP, and other cryptocurrencies as property under US tax law. That implies that just like real estate, the exchange or sale of digital assets for other goods is a taxable event. Also similar to stockholders, crypto holders are required to report capital loses and gains from cryptocurrency trades.

Taxpayers who fail to pay the taxes they owe in their digital currency transaction can be subject to penalties and interests, and even criminal prosecution in more serious cases.

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Coin Center Sues IRS For Unconstitutional Tax Reporting Rules

Coin Center, a Washington DC-based Not-for-Profit organization with a focus on crypto policies, has filed a lawsuit against the United States Treasury and the Internal Revenue Service (IRS) for a tax reporting requirement it wants to pass into law.

Coin Center said the reporting requirement as detailed in the “Infrastructure Investment and Jobs Act” will require users to report transactions of $10,000 and above. The Bill demands the receiver of the funds to share the name of the sender, their date of birth, and their Social Security Number (SSN). According to the Coin Center lawsuit:

“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans,” the organization said on its website, adding that “uncover a detailed picture of a person’s personal activities, including intimate and expressive activities far beyond the immediate scope of the mandate. The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”

Coin Center is advocating that every American has the right to conduct whatever transactions they wish to conduct within a protected level of privacy that is designed.

Coin Center also noted that its “mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.”

The United States government has been doing all it can to provide long-sought oversight over the digital currency ecosystem and one of the most proactive ways it is doing this is by expanding the existing taxation provisions. While the Coin Center lawsuit is still very new, it is an indication that the crypto industry might be more resistant to whatever regulation they deem unfavourable.

U.S Court Issues John Doe Summons to Taxpayers that Failed to Remit Crypto Taxes

The United States District Judge, Paul G. Gardephe has granted permission to the Internal Revenue Service (IRS) to issue what is called a John Doe summons on M.Y. Safra Bank to release information about customers who may have failed to remit taxes received from conducting crypto transactions.

According to a court order, Gardephe specifically asked SFOX to produce information about its customers who use M.Y. Safra Bank to make cryptocurrency payments. SFOX is a complete crypto dealer that provides crypto services for institutional investors that provide the liquidity, security and infrastructure needed to open the full potential of digital assets.

SFOX collaborated with M.Y. Safra to offer SFOX customers access to bank accounts for depositing and withdrawing cash.

SFOX users could use their money on M.Y. Safra to buy and sell positions in SFOX virtual currency. IRS, therefore, expects M.Y. Safra to provide information on the identity and crypto transactions of SFOX customers based on their partnerships so as to determine if IRS laws are complied with.

SFOX has a record of over 175,000 registered subscribers on its platform that have collectively performed transactions of over $12 billion since 2015. The IRS also stated that a third party is required to report such virtual transactions to them.

The IRS Commissioner Charles P. Rettig said in a statement that;

“The government’s ability to obtain third-party information about individuals who have failed to report their digital asset income remains an important tool for tax evasion.” According to him, the John Doe summons is a step in the right direction towards ensuring that everyone pays their taxes according to what they earn.

The U.S IRS issued a warning letter in 2019 to crypto owners stating that taxpayers must pay taxes owed or file amended tax returns for their cryptocurrencies.

“Taxpayers should take these letters very seriously by reviewing their tax returns and, if necessary, amending previous returns and paying back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig.

US IRS Introduces Broad Category for Digital Assets Ahead of Tax Season

The United States Internal Revenue Service (IRS) is preparing for the forthcoming tax season, especially as it concerns digital assets.

According to a draft bill published by the tax regulator, investors in the US will be able to see if and how they are supposed to report their digital assets which include crypto coins and Non-Fungible Tokens (NFTs).

The 2022 draft IRS Tax forms have created a new category dubbed “Digital Assets” for the different categorizations of assets that are tied to the emerging blockchain industry. To give a more emphatic and clear picture of the obligations it places on taxpayers, the IRS defined Digital Assets as;

“..any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”

In order to avoid any gray areas, the IRS stated that any digital asset that behaves in similarity to these assets per this definition will be treated as such.

The regulator stated some set of conditions under which Americans will need to give affirmations based on their crypto holdings. Per the draft bill, anyone who has received payment in cryptocurrencies over the past year received or gifted the assets categorized as digital assets amongst other conditions will have to properly report these items.

Taxing crypto gains is a very volatile subject of discourse in the global ecosystem, and based on their cryptographic nature, the government believes more people choose to hide their crypto transactions in a bid to evade taxes.

The IRS has been exploring quite a number of tailored solutions that can enable them to monitor crypto transactions in a bid to make everyone accountable. Besides working with exchanges to get necessary data on request, other private service providers are also helping the IRS develop tools that can aid its crypto tax goals.