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IRS Cracking Down on Cryptocurrency Tax Evasion, Seeks Private Crypto Tax Contractors

Updated on 21/07/2020 11:00 AM HKT

The Internal Revenue Service (IRS) has requested help from independent consultants to crack down on non-compliance in cryptocurrency tax.

On May 12, the IRS sent out a Statement of Work (SOW) soliciting private contractors to aid in auditing tax returns related to cryptocurrency and virtual assets.

An email first reported by CryptoTrader.Tax read, “The Internal Revenue Service is engaging outside contractors to assist our Revenue Agents in calculating taxpayers’ gains or losses as a result of their transactions involving virtual currency. We are placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract. Attached is a sample Statement of Work describing the types of services we are looking for. I wanted to make you aware of our efforts in case your company has any interest in pursuing this type of work.”

Statement of Work Requirements

Per the SOW, the IRS is requesting help, from FinTech companies that develop or are proficient in cryptocurrency tax software, to aid in the reconciliation of reported crypto gains and losses on the tax returns of US citizens.

The process described in the SOW aims at using software to systematically obtain records of cryptocurrency transactions data from exchanges, wallets, data sites, and other data sources to create a more detailed and transparent tax report for the taxpayers under consideration.

Source: IRS SOW

It appears the service sought by the IRS is an efficient tool to compare information reported on tax returns with the information provided by exchanges and digital asset service providers to discern if any further audit should be carried out.

IRS More Knowledgable than Ever on Crypto

In Notice 2014-21, the IRS explained that they have applied general principles of tax law to determine that cryptocurrencies or virtual currency are classified as property for federal tax purposes.

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.

The recent SOW sent out by the IRS highlights that the federal agency has become far more knowledgeable in the cryptocurrency space. In a section of the SOW entitled, “Services to be Provided”, they detailed how complex an individual tax return calculation can become when dealing with cryptocurrency as any one user could have “hundreds and thousands” of transactions in a single year on multiple platforms.

The request for aid is so far just a request and no crypto tax service providers have been legally forced to hand their users’ data over to the IRS. The SOW does state, however, that the contractors who do decide to take on the project will be required to testify at trial to explain any discrepancies in data for the IRS. “While more updates like this are expected in the coming years, services like Taxbit remain on top of government regulations of crypto and aim to make doing your taxes as easy as possible.”

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John McAfee is Having a Fascinating Time in Spanish Prison Says it's "Not That Bad"

John McAfee is having a fascinating time in Spanish prison after being arrested for tax evasion and fraud. The English-American computer engineer compared prison to the Hilton, without the turn down service.

Crypto personality, former US presidential candidate, and anti-virus software developer John McAfee sent a message to his Twitter followers sharing his experience in the Spanish prison after his arrest.

According to the post tweeted by his wife, Janice McAfee, things are not bad in the prison. The 75-year-old Millionaire told his wife that Spanish prison life is a fascinating experience

McAfee wrote:

“Hello from prison my friends. I am having a fascinating time. Spanish prison is not that bad. We can wear whatever clothes we want. We can smoke and socialize. It’s like the Hilton without turn down service.”

Through his wife, John McAfee continued explaining how he has been adapting to prison life and reported that he has even made new friends. He stated:

“My cell mate is an ambassador’s drug dealer, I wish I would have known him before. The prison yard is full of murderers but mostly nice people. I spend most of my time with my back to the wall. I miss and love you all. I will update you more when I am able.”

However, this is not the first time when McAfee has spent time in jail. In July 2019, law enforcement officials in the Dominican Republican arrested him and his team after they were found having many large-caliber firearms and weapons without proper authorized documents.

John McAfee Charged With US Tax Evasion

On October 5, the U.S Department of Justice (DOJ) charged John McAfee with failing to file tax returns and evading taxes for four years. He was arrested in Spain, and now awaiting his extradition to the United States.

The U.S Department of Justice claimed that McAfee made over $23.1 million in income through promoting cryptocurrencies, speaking engagements, consulting work, selling his life-story rights to documentaries, among other things. Despite making such a huge income, DOJ stated that McAfee failed not only to file tax returns but also to pay taxes between 2014 and 2018 and resorted to concealing assets in the names of others.

McAfee has taunted U.S authorities many times. On June 14, he created Twitter posts while in Cuba promoting BeatzCoin (BTZC) whose current value is $0.0002, saying: “Yes SEC, I’m promoting. Fucking come and get me.” In January 2019, he tweeted that he hasn’t filed a tax return for eight years because taxation is illegal.

McAfee faces a maximum sentence of four years for failing to file his tax returns and a maximum sentence of five years for each of the five counts of tax evasion.

India Accuses WazirX of Tax Evasion, Future of Local Crypto Sector Remains Unclear

India’s largest cryptocurrency trading platform, WazirX, has been accused by the country’s authorities of tax evasion worth $5.4 million (40.5 crore rupees).

On December 31, the Mumbai office of the goods and services tax (GST) authority said that it tracked down Rs 49.20 crore from WazirX in taxes and penalties after a series of investigations on the platform’s transactions.

The firm, which Binance acquired in 2019, refuted the government’s claims saying any alleged evasion was unintentional.

Zanmai Labs, which owns the WazirX platform, also said reiterated, saying the alleged tax evasion was not intentional. It is India’s first crypto-related tax evasion probe.

“There was an ambiguity in the interpretation of one of the components, which led to a different calculation of GST paid. However, we voluntarily paid additional GST to be cooperative and compliant,” it said in a statement. “There was and is no intention to evade tax.”

In WazirX, users can transact in rupees or WRX – utility tokens that Binance introduced for trading cryptocurrencies.

Since crypto has become a potential source of revenue and fraud, the Indian tax authorities are witnessing a new era of investigations.

The accusation towards WazirX comes at a time when India’s regulation towards cryptocurrencies still remains unclear.

Although India’s crypto sector seems to be booming, the government remains at a standstill as crypto firms have waited for legislation on the virtual token industry for more than a year.

The cryptocurrency bill had been listed for the parliament’s winter session, but it was not tabled due to a requirement for further deliberation.

According to a December 30, 2021, Blockchain.News reported, Ajay Tyagi, the chairman of the Securities and Exchange Board of India (SEBI), encouraged mutual funds to resist investing in crypto-related assets as they wait for the government to consider new cryptocurrency rules.

The key issues that surround India’s crypto sector are whether these digital currencies should be considered a commodity, an asset, or legal tender.

Following the classification of cryptos, the country’s taxation system is expected to see changes as it veers to protecting investors from fraud and other malpractice.

“Indian tax laws are unclear about the implications of new-age digital transactions such as crypto, NFT, online gaming, etc.,” says Jay Jhaveri, partner at Mumbai-based accounting firm Bhuta Shah & Co. “The weakness in Indian laws, especially GST, with its ever-evolving structure, is being exploited to the fullest by platforms that deal in new-age digital transactions.”

According to a December 29, 2021, Blockchain.News reported Indian central bank had announced fresh plans to introduce a basic CBDC initially before implementing a more sophisticated version as the country struggles to regulate cryptocurrencies.

On December 28, 2021, the Reserve Bank of India released a report called “Trend and Progress of Banking in India 2020-21″ and further elaborated on the regulator’s plan of a Central Bank Digital Currency.

The report states, “in its basic form, a central bank digital currency (CBDC), provides a safe, robust and convenient alternative to physical cash. In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement.”

While India has witnessed an increase in the popularity of cryptos, the nation’s judiciary is not in favour of supporting them.

The country now has more than ten crore crypto owners in the world, according to broker discovery and comparison platform BrokerChooser. The total number of crypto owners in India currently stands at 10.07 crore, which puts it ahead of every other country in the world, India Today reported.

According to a report from Blockchain.News on December 7, 2021, despite the recent progress being made with respect to the regulations of digital currencies in India, a Lok Sabha lawmaker, Nishikant Dubey, advocated that the nation should ban cryptocurrencies rather than embrace these nascent assets through regulation.

“From 2013-14, our member Shivkumar Udasi has been contending that this should be stopped, it is based on darknet technology, and this would only be used for drugs, prostitution, terrorism, arms,” Mr Dubey said, adding that “the whole world is troubled by it. The RBI has been saying continuously that this should be completely banned.”