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IRS Introduces New Form 1099-DA for Reporting Income from Digital Asset Transactions

A preview of the new Form 1099-DA, a tax form that will be used by cryptocurrency brokers to record transactions involving digital assets, has been made available by the Internal Revenue Service (IRS) of the United States of America. As part of the continuous efforts of the Internal Revenue Service (IRS) to enhance compliance and guarantee that taxpayers appropriately report their income from digital assets, this form has been developed.

By the beginning of the year 2025, it is anticipated that Form 1099-DA will be in use. Brokers will be responsible for preparing this form for each client who sells or trades digital assets. According to the form, brokers will be required to disclose certain information, which may include token codes, wallet addresses, and places where blockchain transactions are taking place. It will be possible for the Internal Revenue Service to identify taxpayers who have transactions that may be difficult to detect via standard ways of information reporting if this level of reporting is implemented.

It is clear that the Internal Revenue Service is committed to resolving the tax consequences of transactions involving digital assets, as seen by the issuance of Form 1099-DA. According to the Internal Revenue Service (IRS), the purpose of mandating that brokers record these transactions is to guarantee that taxpayers correctly report their income and pay the required taxes on their activities involving digital assets.

The rising significance of cryptocurrencies, nonfungible tokens (NFTs), and stablecoins in the financial landscape is reflected in the decision made by the Internal Revenue Service (IRS) to list these digital assets as reportable assets on Form 1099-DA. Having a comprehensive grasp of the digital asset transactions that taxpayers engage in is very necessary for the authorities in charge of taxation, given the continued growth in popularity and utilisation of cryptocurrencies.

Among the crucial data elements that are captured by the draft form are the date of acquisition, the date of sale, the proceeds, and the cost basis of the crypto assets that were sold. For taxpayers to correctly submit their cryptocurrency tax filings, it is vital for them to have these information. Furthermore, the form has a checkbox labelled “unhosted wallet provider,” which serves as an indication that the Internal Revenue Service intends to include unhosted wallets within the definition of a broker. When generating unhosted wallets or engaging with platforms using unhosted wallets, users may be required to give know-your-customer (KYC) information as a result of this shift.

Despite the fact that the draft form offers helpful insights into the reporting requirements, it is essential to keep in mind that it may be subject to modifications as a result of the input that would be received during the comment period. Through its website, the Internal Revenue Service (IRS) welcomes members of the public to provide feedback on draft or final versions of forms, instructions, or publications.

As a conclusion, the issuance of Form 1099-DA by the Internal Revenue Service represents an important milestone in the process of regulating and reporting revenue from transactions involving digital assets. Through the requirement that brokers record these transactions, the Internal Revenue Service (IRS) hopes to promote compliance and guarantee that taxpayers appropriately report the income they get from digital assets. In order to prevent possible fines or audits, it is essential for taxpayers to be knowledgeable about their reporting responsibilities for digital assets, since the landscape of digital assets continues to undergo continuous change.

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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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IRS Hoping to Deanonymize Monero and ZCash Privacy Coins to Prevent Cybercrime

The Criminal Investigation Division (CID) of the Internal Revenue Service (IRS) is actively hiring private contractors to study and analyze privacy coins, as there has quite been a lot of fraudulent activities revolving around their usage.

Monero — a Popular Choice for Fraud

While the world has undergone coronavirus cybercriminals have been hard at work conducting their habitual illicit operations with the help of privacy coins.

Monero (XMR) and Zcash (ZEC) are quite an attractive option for cyber scammers, as they offer more anonymity and privacy than Bitcoin. The IRS is hoping to eventually deanonymize these privacy coins in order to put a halt to cyber fraud.

Why is Monero in Cybercrime?

XMR currently stands at the top of the list, for the most private cryptocurrencies on the market. Monero transactions operate on blockchain technology and are harder to trace, due in part to its ring signature and stealth addresses. Also, since Monero’s ledger is easy-to-access and is public, it is a popular choice that cybercriminals choose in order to carry out their illicit activities.

Zcash a Close Second

Another privacy coin that IRS is hoping to further investigate is Monero’s counter rival, Zcash. ZEC operates by using an anonymity tool called Zero-Knowledge-Proof, which allows users to transact with each other without revealing their true addresses to anyone.

In other words, this makes it hard for the receiver to trace and figure out the identity of the sender, and vice-versa. Because of its end-to-end-encryption property, Zcash users can remain anonymous despite conducting numerous online transactions.

Privacy Coins and Cybercrime

Privacy coins, such as Monero and Zcash, are common cryptocurrencies used in cybercriminal rings. In contrast, Bitcoin, which offers no anonymity, is less attractive to cyber scammers.

Depending on the privacy coin, anonymity levels differ. This type of cryptocurrency is attractive to cybercriminals, because it obfuscates the transacted amount, wallet addresses, the identities of both sender and receiver; it is also hard to trace the transaction trail.

Because of the anonymity offered by privacy coins, fraudulent activities such as tax evasion and money laundering are common with Monero and Zcash.

How the IRS Hopes to End CyberCrime

Based on the Request for Information (RFI) posted by the IRS Criminal Investigation program, private contractors working for them have developed software used to detect suspicious online transactions.

Illicit activities reported by various law enforcement agencies in the past will be gathered and analyzed in detail to prevent future cases of phishing and fraudulent behavior.

US law enforcers are also looking to come up with more innovative technological strategies to trace privacy coins, layer 2 off-chain protocol networks, and side chains.

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IRS Sends Warning Letters to Prevent Crypto Owners from Evading Tax

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The Internal Revenue Service began sending warning letters out to cryptocurrency owners in the United States, announcing that taxpayers should be paying back taxes they owe or to file amended tax returns in regards to their cryptocurrency holdings.

These letters also served as a warning that they may have broken federal tax laws. “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,” said IRS Commissioner Chuck Rettig. The announcement made by the IRS states that the letters are “educational letters” and by the end of August, more than 10,000 taxpayers will have received them.

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Coinbase has shared some of its data with the IRS under a federal–court order on around 13,000 client accounts. These clients were customers who had transacted $20,000 or more between 2013-2015. The data that was provided to the IRS included the client’s name, taxpayer identification number, and address.

Don Fort, the IRS Criminal Investigations Chief mentioned that the IRS plans on making public criminal tax-evasion cases that involve cryptocurrencies. It was also mentioned by the IRS that they will be issuing more legal guidance on cryptocurrencies in the near future.

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Crypto, Tax, and the IRS: The Good, The Bad, and The Downright Ugly

They used to say that Al Capone feared the Internal Revenue System (IRS) more than he feared the FBI. This fear proved to be well-founded, as tax affairs did precipitate Capone’s downfall.

Capone’s troubles with the IRS illustrates this piece well, but with a 21st-century twist. We’re not talking about ill-gotten gains made through bootleg alcohol, gambling, or protection rackets. We are talking about cryptocurrencies, and how the IRS is insisting that any income arising from crypto deals is indeed taxable. And it wants its tax dollars pronto.

The IRS is watching you

The IRS is a government agency whose sole task is to ensure that millions of Americans pay their taxes on time and in full. Or else.

Cryptocurrencies have hitherto posed a problem for the IRS, as Bitcoin (and any other cryptocurrencies, for that matter) existed in a completely unregulated space that was, for a long time, beyond the reach of the IRS’s claws. The agency did not like the fact that millions of dollars were flowing freely under their hawkish noses, and there was not a single tax dollar that could be taken for Uncle Sam.

Now, to understand the IRS’ predicament, you must first know that the anonymity granted by crypto transactions enabled many to make a hefty profit without exposing any personal details. Ergo, the person or persons behind the gains could not be traced. However, anonymity and decentralization were at the heart of Bitcoin’s very raison d’etre.

So starting back in 2016, the IRS launched a broadside into Bitcoin’s ship and blew a hole wide open in its thus far watertight blockchain compartment. The IRS asked Coinbase, one of the world’s largest crypto exchanges, to hand over transaction-related data for over 14,000 customers who had engaged in crypto activity through the site. Particularly, the IRS was interested in 13,000 customers who had reportedly traded in about $20,000 worth of Bitcoin between 2013 and 2015.

The move signified the first step on the IRS part to assert dominance over Bitcoin, and begin collecting what the agency believed it was owed.

Cue to 2019, when the IRS is flexing its tax-collecting arms hard by sending thousands of warning letters to crypto owners and traders.

The IRS and the letters of doom

If you are an American taxpayer who omitted to declare any income arising from crypto deals on the side in your last few tax filings, you may have reason to worry indeed.

The IRS has dispatched around 10,000 letters to as many taxpayers who are believed may have failed to disclose crypto profits. The IRS says that the names of these people were obtained through ‘compliance efforts’ on the agency’s part.

The letters come in three equally ominous flavors with a big IRS stamp on them: Letter 6173, Letter 6174 or Letter 6174-A. In order of severity, 6173 is the more lenient, and 6174-A demands immediate remedial action. Or else.

Letter 6173 provides some degree of leniency and assumes that the taxpayer may have acted in good faith due to ignorance of the tax implications surrounding cryptocurrencies. In this scenario, the IRS asks you politely that you file your correct tax returns with a good explanation, and the IRS may not pursue further action.

The other two letters bear a certain degree of urgency and will expose the recipient to a tax audit if the tax situation is not rectified in time. The deadline of August 30th is approaching fast, so any affected taxpayer is in line for a few stressful days.

The bottom line

The infamous John Doe Coinbase affair sort of negated the whole concept of decentralization and anonymity that is supposed to be at the core of the cryptocurrency ethos. With one quick smite of its legal sword, the names and addresses of about 10,000 people were disclosed to the prying and hungry eyes behind the IRS visage.

Cryptocurrencies are having a troubled upbringing. Think of them as the problem child of the financial family. Banks and tax agencies are the ‘good’ brothers, cause they live in harmony with each other and collude to inflict treachery on their problematic sibling, who was seemingly born to disrupt the traditional fiat family’s status quo. And the ‘good’ brothers cannot cope with that, as the rebel sibling threatens their very future.

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Exclusive: Gerard Dache, on the Two Contradictions of Facebook Libra

Exclusive interview with Gerard Dache: Part 2

In part 2 of the interview, Gerard walked us through some of the recommended bills to the government in fostering blockchain innovation, such as the “Blockchain Promotion Act”. He then shared his views on the nature of Bitcoin and two contradictions of Facebook’s Libra.

In Section 2 “Working group to recommend the definition of blockchain technology” of the Blockchain Promotion Act, as some academics have defined “blockchain technology” in their papers, is this bill trying to show that the working groups are more authoritative than the academic scholars? If the definition set is different from those in academics, will those academic papers and whitepapers lose their authority?

A great question! Firstly, we have 50 different working groups, and I am not involved in all of the output of all of them. We tend to think in terms of continuing to bring clarity, we are not in competition with the politicians or the academics and we are not a political organization. We want to bring the government and businesses together.

In my opinion, we are going to need a whole new asset class. These technologies are fundamentally different than securities or utilities or a lot of these things we seem to patent, they may have attributes of them.

We have never seen a technology like this before. We are going to need new regulatory tools to deal with it.

What’s your observation on the role of cryptocurrencies in the financial industry?

When cryptocurrencies first came out, the biggest enemy of cryptos was the financial services industry. Everybody in blockchain started moving to all these different use cases, such as supply chain, identity, healthcare, and others; blockchain will be helpful but it will be a slow path. In the area of financial services, there was the most animosity towards cryptocurrencies. The pace of blockchain development will be the quickest because the banks and financial institutions realize if they don’t leverage blockchain in their operations, they’re going to be left behind and will be out of existence.

The minute that banks start moving into this space, they will then drag the government. All the Facebook hearings, Libra hearings and other things are happening because the financial services industry is moving much faster than any other industry, and we see incremental innovations there. In the area of banking and financial services, that’s where the earthquakes will rock the foundations of our finances. That’s also where the laws must go first.

The US SEC claimed Bitcoin is not a security; the IRS said Bitcoin is considered property; the CFTC said Bitcoin is a commodity. How does the GBA or your personal view the nature of Bitcoin? Should Bitcoin be regulated?

There is no government agency that can come in and make an impact on Bitcoin. There isn’t any way for a government to regulate or to change the supply or to change the price of cryptocurrencies. The government can require its citizens to report it, but it is literally impossible for them to be regulated.

In your opinion, do you think Bitcoin is a security, commodity, property, or none of the above?

I believe it’s none of the above – Bitcoin has the property of the above mentioned and it bears similar characteristics as gold. However, for high dollar transactions, it can also be a payment system. GBA is not a lobbyist organization, so we’re not trying to push for legislation. In my opinion, we need a new asset class and new rules.

Let’s talk a bit about the future of Facebook’s Libra. David Marcus mentioned in the hearing that Facebook Libra is a payment instrument. What are the regulations required for Libra to stay compliant?

Facebook was hit with two completely conflicting issues; they said the reason that they are building this is that they want to help bank the unbanked. They also said at the same time that they will be fully AML and KYC compliant. The reason why so many people are unbanked is that they don’t have an identity. How are you going to give identity, do AML/KYC and at the same time bank the unbanked?

Facebook is going to run into so many regulatory challenges that I doubt they will ever launch, and if they do, it’s not going to be anytime soon.

Do you think Libra is not a cryptocurrency because of its centralized nature?

Yes. Facebook hasn’t figured out a lot of this stuff themselves yet, so the fact that they announced when they did, caused a lot of chaos but also woke up a lot of people. They are not ready for their prime time yet. In fact, many members of the association have many questions about what it would mean when trying to run a node and when they would be compliant, and the current regulators are not ready for this.

Recently, Walmart filed a patent on digital currency. What will be the future of Bitcoin when traditional giants start launching their own digital currency like Facebook?

For Facebook’s Libra and Walmart, when they launch their own token, I believe they will become another ‘Western Union’: another centralized payment channel.

I don’t think that they can actually take on the properties of a cryptocurrency. The concept of cryptocurrencies, as a decentralized mechanism, is so antithetical to what they’re trying to do.

My prediction is that I see Bitcoin going up to about half a million dollars. The reason is that if I go to Starbucks, or McDonald’s, I don’t need 51% of all the computers in the world to validate my transaction. However, if I’m going to buy a house or a car, or if the government is going to send a transfer payment to a state, a currency as secure as Bitcoin will be needed. I believe that we’ll see networks and technologies that are much lighter, much faster like the lightning network that will be secure enough for smaller transactions. Bitcoin will become more like the cornerstone gold, and more like the reserve currency that all of these technologies are tethered to.

I believe Bitcoin has something that very few other cryptocurrencies have – which is a fully decentralized nature gaining people’s trust. I think that’s where the value is, not in the everyday payment system, but as the foundation for a whole new economy.

Do you think the future of blockchain development will be driven by permissioned blockchains instead of public blockchains?

When the internet first came out, it was hard to imagine that we would be using the internet for our banking. Then we would use the internet to swipe right or left to decide who to date. We need transitional technologies and I believe that these enterprise permissioned blockchains are very important transitional technologies. If you try to tell someone we’re going to go from where we were ten years ago, to a fully decentralized economy, people will say you’re crazy. It is going to take time for that to happen. It may take decades, but these enterprise permissioned systems, I believe, are critical to the transition to the new economy.

IRS Refuses Watchdog Request to Clarify 2019 Crypto Tax Guidelines

The Internal Revenue Service will not clarify how taxes work with cryptocurrencies and digital asset transactions according to a US congressional watchdog’s report released on Wednesday.

Following Rep. Ken Brady’s (R-TX) request for clarity on how taxes are levied against cryptocurrency, the Government Accountability Office (GAO) published a report evaluating the IRS’ current approach and public guidelines on cryptocurrency.

GAO Recommends Disclaimer to 2019 Crypto Guidelines, IRS rejects

Following the report, GAO made recommendations to the IRS, as well as an additional recommendation to the Financial Crimes Enforcement Network (FinCEn).

The recommendations were, “GAO is recommending that IRS clarify that part of the 2019 guidance is not authoritative, and take steps to increase information reporting; and that FinCEN and IRS address how foreign asset reporting laws apply to virtual currency.”

In response to the recommendations, GAO reported that the IRS, “Agreed with the recommendation on information reporting and disagreed with the other two, stating that a disclaimer statement is unnecessary and that it is premature to address virtual currency foreign reporting.”

Despite the IRS’ refusal to disclaim the guidelines as non-authoritative, GAO believes a disclaimer would increase transparency and that IRS can clarify foreign reporting without waiting for future developments in the industry.

FinCEN agreed with GAO’s recommendation.

Overall Clarity needed in US Regulatory Guidance

As reported earlier by Bloomberg Tax, while the IRS’ 2019 guidance answered some questions around the tax treatment of cryptocurrencies, they also raised new concerns among virtual asset stakeholders. Complying with tax requirements may be difficult, and the GAO report suspects that trading activity may be underreported due to a lack of clarity around what should be reported.

Prior to ending his presidential campaign, Democrat Andrew Yang had expressed his frustrations at the mixed communication from the main regulator bodies. He said “Right now we’re stuck with this hodgepodge of state-by-state treatments and it’s bad for everybody: it’s bad for innovators who want to invest in this space. So that would be my priority is clear and transparent rules so that everyone knows where they can head in the future and that we can maintain competitiveness.”

Perianne Boring, President and Founder of the Chamber of Digital Commerce has expressed similar regulatory frustrations as those presented by Yang.

In a recent interview with Blockhain.News, Boring commented, “In the United States, we have a very fragmented regulatory environment which has been an obstacle toward a framework that supports innovation—you have the SEC , that’s looking at digital tokens and classifying them as securities; the CFTC that’s also looking at digital tokens and classifying them as commodities; the IRS is taxing them as property, and FinCEN is regulating them as currency. There are just a lot of different regimes. And so, for the companies operating token platforms, there’s a lot of regulatory uncertainty.”

The reality is that until regulatory bodies are able to clarify and demystify how innovation and investment can work in the US, innovation will be tentative and investors will be apprehensive.

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Can US Lawmakers Really Just Mint Two $1 Trillion Coins to Back a Digital Dollar COVID Stimulus with "No Additional Debt"?

As the economy continues to deteriorate in the ongoing COVID-19 pandemic climate, US Lawmakers are once again pitching the creation of a sovereign digital dollar to quickly distribute the proposed stimulus packages.

Congresswomen Rashida Tlaib (MI-13) and Pramila Jayapal (WA-7) unveiled the Automatic BOOST to Communities Act (ABC), legislation to immediately provide a $2,000 payment using BOOST debit cards to every person in America as economic stimulus relief during the COVID-19 crisis.

After the initial payment, the ABC Act will provide a further $1,000 in recurring monthly payments for a full year from the time the coronavirus pandemic has been defeated.

According to a release on 16 April, “the ABC Act would be funded directly from the Treasury with no additional debt issued by minting two $1 trillion coins, and additional coins as necessary.”

FedAccounts and the Two Trillion Dollar Question

While there has been discussion about the Federal Reserve getting involved in the ongoing race for Central Bank Digital Currency (CBDC) dominance with a proposed FedCOIN, the motivations previously revolved around concerns with China’s determination to launch their DCEP and Facebook’s Libra project, which incidentally may be showing up once again on the Fed’s radar with the release of their new white paper earlier today.

The ABC Act would jolt the Federal Reserve into action if passed, and the Fed would be authorised by Congress to create digital wallets for all people and businesses in the US. These digital wallets are called “FedAccounts” in the proposal. The digital dollars that will be distributed are not going to be stablecoins and there is no mention of the payments being based on blockchain infrastructure.

An alarming notion is the insinuation that the FED must recognise the two newly minted Treasury coins valued at a trillion dollars each to back the payments with “no additional debt” and the explanation given seems like an exercise in creative accounting. According to Fortune, “Under the plan, the Treasury would mint the two $1 trillion coins, then deposit them at the Federal Reserve. Forced by law to recognize the coins as legal tender, the Fed would add $2 trillion to the Treasury’s account. The Treasury would then use this money, under Congress’s direction, for stimulus.”

FinTechs Enlisted in the Fight Against COVID

The bill was introduced as concerns continue to be raised regarding the timeliness of the $1,200 stimulus payments authorized under the CARES Act. While the IRS has been distributing the stimulus, it has not been an easy or quick process so far.

An appeal to Congress by Financial Innovation Now (FIN), on March 19, for FinTech companies to help distribute the loans digitally was given the green light by Lawmakers over the last week.

PayPal, Square and Intuit have received the US Government’s approval to take part in the Small Business Administration’s (SBA) Paycheck Protection Program(PPP) which was established in response to the COVID-19 pandemic triggered global financial crisis.

FIN is a FinTech alliance which includes Square, PayPal, Intuit and Stripe. In the letter addressed to lawmakers they argued that they had “the reach, relationships, and digital capabilities to reach those businesses most vulnerable” in a more timely fashion while the traditional US insititutions were left wanting in this regard.

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Coinbase CEO: Americans are Investing Their COVID Stimulus Checks in Bitcoin

Brian Armstrong, the CEO of US-based crypto exchange Coinbase, has revealed data showing how $1,200 deposits similar to the stimulus checks being offered to Americans by the government have skyrocketed this week. Coinbase is the leading crypto exchange on American soil.

Americans bullish on Bitcoin

The information presented suggests that some Americans are looking at the other side of the coin in their stimulus checks as they are not using them to purchase food and gas. Instead, they are keeping their fingers crossed and investing in Bitcoin.

The stimulus cheques are part of US President Donald Trump’s plan to render a helping hand to U.S. citizens as the coronavirus pandemic continues causing economic turmoil across the globe. Reportedly, at least 22 million Americans have lost their jobs.

The Internal Revenue Service (IRS), the revenue arm of the United States federal government, started disbursing the stimulus checks worth $1,200 to approximately 80 million people. Eligibility was pegged on annual gross income that did not exceed $75,000.

Statistics from a CNBC survey showed that the majority of Americans were using the stimulus checks on food and gas at 16% and 10%, respectively.

Bitcoin halving on the horizon

With the much-anticipated Bitcoin halving event just around the corner, the data availed by Armstrong imply that some Americans want to add value to their stimulus checks by investing in Bitcoin.

The Bitcoin halving scheduled for May will slash the mining reward from 12.5 BTC to 6.25 BTC. As a result, the supply of Bitcoin will reduce, and depending on demand; the price is anticipated to increase. The second halving event took place in July 2016, and a year later, in December 2017, Bitcoin’s price reached an all-time high of $20,000.

Recently, a surge in Bitcoin online courses was witnessed as the demand hit 300%, and this is linked to measures, such as lockdowns, social distancing, and quarantines, being necessitated to curb the coronavirus pandemic.

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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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