tax - Pwim.Net

IRS Sends Warning Letters to Prevent Crypto Owners from Evading Tax

0
0
1
223
1272
Sarah’s
10
2
1493
14.0

Normal
0

false
false
false

EN-US
JA
X-NONE

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:””;
mso-padding-alt:0cm 5.4pt 0cm 5.4pt;
mso-para-margin:0cm;
mso-para-margin-bottom:.0001pt;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Cambria;
mso-ascii-font-family:Cambria;
mso-ascii-theme-font:minor-latin;
mso-hansi-font-family:Cambria;
mso-hansi-theme-font:minor-latin;}

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.

Cryptocurrency exchange

0
0
1
7
45
Sarah’s
1
1
51
14.0

Normal
0

false
false
false

EN-US
JA
X-NONE

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.

Images via Shutterstock

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.

Image via Shutterstock

Bitwala Incorporates CryptoTax for Better Tax Reporting

On Oct. 22, Bitwala, a German Licensed Bitcoin Banking Service App, announced its new integration with CryptoTax, an entity that assists crypto users to adhere to yearly tax declaration deadlines.

Bitwala asserted that crypto tax headaches would become a thing of the past based on the introduction of CryptoTax that is deemed the brand new tax remedy.

The new integration would enable Bitwala users to enclose cryptocurrency statements with their tax reports. This process will be as easy as attaching a PDF-file to an email. Additionally, the banking service offered will be the first-ever to integrate crypto tax reporting solutions to users directly through an app.

Bitwala’s co-founder and CEO/CTO, Benjamin Jones, noted:

“Taxation is a part of life, and cryptocurrencies are not exempted. Both trading gains and losses impact your tax balance, yet most cryptocurrency exchanges fail to provide any tools for proper reporting.”

Bitwala customers in all 31 nations of the European Economic Area (EEA) will enjoy the fully compliant and ready-for-use tax statements for any transaction. Additionally, Swiss and German taxpayers will be availed with country-specific tax reports, whereby all legal requirements will be met.

On the other hand, Bitwala’s CEO, Klaus Himmer, said, “Even tax advisors are struggling with reporting cryptocurrency trades to the tax authorities the right way. With CryptoTax, standardized reports leave no room for ambiguity. Bitwala customers will be the first to benefit from our solution, which makes the taxation of cryptocurrencies as user-friendly as possible.”

Image via Shutterstock

UK Tax Authority Updates Its Guidelines for Crypto Taxation

Her Majesty’s Revenue and Customs (HMRC), the tax and payments customs authority for the United Kingdom, has updated its guidelines for crypto taxation as they pertain to both individuals and businesses.

The guideline updates were published on Nov. 1, further clarifying HMRC’s stance on how cryptocurrency will be taxed in the UK. It relates to companies planning to buy/sell tokens, mine exchange tokens for additional assets or exchange goods/services for tokens in return; all of which will now be liable to one or more different types of tax.

It is to be noted that the British tax authority has elucidated that it does not consider any established kind of cryptocurrency to be money or currency. 

HMRC has also acknowledged that the cryptocurrency industry is fast-paced and hence, it will examine each case on its individual merit and accordingly apply the relevant tax provisions, instead of relying on theoretical implications alone.

This appears to be a stark contrast from the previous notion held by the HMRC, in considering cryptocurrency as a form of gambling. 

Image via Shutterstock

Blockchain-Based Invoices Reached $1 Billion USD in China with 10 Million Invoices

Shenzhen’s pilot blockchain technology invoice system has reached a new milestone. The program known as ‘fapiao’ which allows the Chinese government to track purchases and prevent tax evasion, has just issued its 10 millionth invoice.

This comes from over 7,500 companies using the e-invoice system to date. The program has now been active for over 15 months, and growth is seen in major sectors including transport, catering, parking, retail and internet services. These sectors make up some of the 100+ sectors involved.

Shenzhen issued its first e-invoice in August 2018, totaling an aggregate invoice amount of almost $1 billion USD to date.

With China ramping up more blockchain services and transitioning the technology into business, fapiao may just be the roll-out needed for all other Chinese cities. Based on the 15 months the program has been running, it seems that many sectors have been able to adapt and benefit from the system.

Tencent, a major company in the crypto space, has also been given the green light to issue similar invoices. This shows that the Chinese Tax Bureau is open to the adoption and usage of more companies following the e-system.

Leveraging blockchain, China’s main aim is to combat fraud including fake receipts, that has been a problem coming from specialized sellers looking to make fast money.

China will continue to implement control features, showing how governments can leverage distributed ledger technology to fight against criminal activity.

Image via Shutterstock

The UK's HMRC Begin Tax Talks for Cryptocurrency

November 2019 has seen newly published guidelines come into place, with Her Majesty’s Revenue and Customs (HMRC) collecting advice and consulting with third parties to create new principles on different taxes in the United Kingdom.

The following taxes have been discussed:

Corporation Tax

The HMRC believes that all transactions falling under this type of tax will require payment. Usually, this will result in taxpayers paying for any profits made on trades or other chargeable gains. A big difference between the UK tax requirements and the American IRS requirements is that if a hard fork is made, generally, no tax will be payable on receipt of the newly formed cryptocurrency. This would be similar to Bitcoin, forking to Bitcoin Cash, etc.

Employment Tax

Any person receiving crypto payment for work or services will be required to pay tax. In the UK, this will mean that National Insurance and Income tax must be paid, following normal employment tax contributions.

Stamp Tax

There will be no tax payment required. Following the HMRC deciding crypto assets are not stock or securities.

VAT

Value-added Tax (VAT) does not require Tax payment from crypto assets. The only requirement is that any good, product or service, pays the VAT as standard.

The UK will want to grow their crypto regulations as they aim to maintain their social status as a financial hub. The following thought leadership is an excellent sign of more to come.

Image via Shutterstock

Shenzhen Taxation Bureau to Launch New Blockchain Tax System with Ping An Group

Ping An Insurance and the Shenzhen Taxation Bureau in China signed an agreement to start using blockchain, artificial intelligence (AI), big data, cloud computing, and other technologies to develop a management platform for taxation for all types of taxpayers in the Greater Bay Area.

The Shenzhen Tax Bureau and Ping An will be working closely together to jointly develop a new system for integrated management of taxation in the area.

Zhang Guojun, Director of Shenzhen Municipal Taxation Bureau said that the cross-border cooperation and openness of the tax system, as well as fintech, are crucial for the development of the new “smart tax” model. He also stated that the establishment of a modern taxation model will be the benchmark for a new tax governance system.

Ma Mingzhe, the Chairman of the Ping An Group said that his company will give its full comprehensive financial and technology contributions to the construction of the pilot modernization of the taxation system.

Shenzhen is also expecting its nation’s first exchange-traded fund (ETF) that will track blockchain-themed stocks as underlying assets. Penghua Shenzhen Stock Exchange Blockchain ETF’s application was filed by the Chinese asset management firm, Penghua Fund, and was accepted by the China Securities Regulatory Commission.

The People’s Bank of China, the country’s central bank is on track to become the first central bank on the globe to issue a national digital currency. New developments of China’s central bank geared towards testing its digital currency electronic payment (DCEP) in the cities of Shenzhen and Suzhou.

Image via Shutterstock

Blockchain: Emergence of a New Breed of Tax Professionals in the Digital VAT World

Being able to track information ‘has always been the taxman’s dream’– Pascal Saint-Amans, OECD

Governments around the world are seeking new sources of revenue, and value-added tax (VAT) is the key revenue driver and the largest contribution to governmental budgets. Each year billions of dollars are lost in tax revenue due to non-compliance, evasion, fraud, and non-collection. As the global tax environment becomes increasingly complex it requires new solutions to increase transparency and close the tax gap.

Tax authorities have invested heavily in digitalization, data integration, and analytics systems to improve tax collection and prevent tax fraud. They are leveraging benefits of “AI” and “Advanced Analytics” on the endless tax data they collect to take an in-depth look at how businesses & industries are performing and identify bottlenecks in the tax system.

The DATA HUNT HAS BEGUN!VAT GOING DIGITAL

“Data is not oil. Oil is a fossil fuel with limitations. Data is air that allows us to breathe and thrive. Lose air and you suffocate.”– Chris Skinner Blog

The world of tax is changing rapidly and “real-time reporting” is one of the hottest topics in the VAT compliance world. Governments around the globe are demanding real-time information from the businesses, and Tax authorities are collaborating across the border and collecting more information than ever before to identify and act on tax issues due to the changing environment and global nature of businesses.

From 2016, the OECD has recommended companies with more than €750 million in revenue will be required to submit to tax authorities country-by-country reports on a number of different tax and financial data points.

This changes the way taxes are reported, filed and collected, disrupting the traditional compliance process and accelerating reporting and filing obligations for businesses.

Many countries have already adopted digitization & they require taxpayers to report VAT transaction data with new requirements such as SAF-T, e-invoicing or real-time reporting.

Latin America was the pioneer of Digital VAT reporting, took off in response to fraud. Brazil introduced measures in 2008 requiring corporations to begin filing their VAT transactions digitally and issue a digital invoice for any intracompany, B2B or B2C sales.

In Europe, countries are increasingly adopting SAF-T created by the OECD, which gives tax authorities access to data in an easily readable format for effective tax inspections. In the United Arab Emirates, there is a prescribed format (.csv) for submitting data to the tax authorities for audits known as ‘FTA Audit File (‘FAF’)’, similar to SAF-T which supports the figures declared in their VAT return.

Companies operating in several countries should be aware and prepared for the fact that data they submit will be shared with other tax authorities worldwide, and they have to be VAT compliant in all the countries where they conduct business.

How Blockchain will Transform Tax?

OECD’s Forum on Tax Administration (FTA) advocates that “big data and blockchain approaches open the possibility of new ways of managing large VAT transactions involving refunds or cross-border transactions.”

Blockchain invented over a decade ago as a public transaction ledger of the cryptocurrency bitcoin in 2008, is ready to unleash a wave of innovation across every industry and sector. When combined with Big Data, Artificial Intelligence, and Human Expertise it opens up a huge range of possibilities for the tax Function.

Blockchain is simply a software protocol.Its three notable features are that it is disruptive, trustless, and highly efficient.The heart of every blockchain is the consensus mechanism that verifies each transaction and cryptographically binds the blocks of the chain together.

Blockchain application in tax has the potential to move the function from retroactive analysis and historical financial information gathering to a position where transactions can be recorded in real-time and may allow earlier collection & oversight through digital data.

It could streamline and accelerate business processes, increase the speed, accuracy, collection of data, improve cybersecurity, and reduce or eliminate the role of intermediaries.

It allows storing of digital invoices on the shared ledger that both seller and buyer have verified. On this immutable data foundation, smart contracts will calculate the VAT amount on the invoice and automate the VAT settlement by routing VAT amount directly to the tax authority & non-VAT part to the company’s account.

Both governments and tax authorities are discovering how to use blockchain technology to improve tax collection and prevent tax fraud.

Combating Fraud

Missing Intra-Community Trader fraud, or Missing trader fraud, the abuse of the VAT rules on cross-border transactions is the most familiar scam in the EU and contributes one-third of VAT fraud in Europe, representing a loss of 60 billion euros each year.

Blockchain has the potential to reduce this gap significantly through audit trail across supply chains, automatic settlements and identity management & two-sided validated invoices.

Cross Border Tax Efficiency & Security

Customs duty, Traders and customs brokers are required to provide information or documentary proof to benefit from any potential reliefs or reductions or verify that products are legal and not dangerous for import, and are in compliance with trade agreements.

If trading were recorded in a blockchain and the customs authorities had access to the chain, they could verify the accuracy, origin & nature of the goods at every stage and can automatically collect duties as goods transit across borders, cutting out third-party declarations.

In the case of Excise taxes, blockchain could track cross-border movements and calculate more accurate duties on products, reducing smuggling and counterfeiting.

“What is revolutionary is that blockchain has potential to Disrupt and will bring a fundamental shift in how data is being collected and exchanged – from information being ‘pushed’ to taxation authorities towards a position where it is being ‘pulled’ by them.

Tax Professionals Watchers and Business-Shapers

Today’s digital world requires a new breed of tax function who can act as a business adviser, tax ambassador, tax-savvy technologist, tax diplomat & tax visioner who can bridge the gap to the C-suite and represents tax’s unique value proposition in the digital age.

Tax Ambassador, shift from traditional role to broader strategic role, to educate the C-suite about the impact of changing tax laws. Such as international tax structure undergoing a fundamental overhaul in response to BEPS and other global tax initiatives.

Tax Technologists, develop new skills by embracing the power of technology, ability to understand how to apply new cutting-edge technologies like robotics, AI and automation, analyze data in real-time, apply data analytics as well as the tax rules and support in the development of real-time tax dashboards.

Act as Tax Diplomats, foster relationships throughout the organization. Work in a closer partnership with other parts of the business, particularly finance and IT. Collaborate and assist CEOs and CFOs on complex business decisions and risk management matrices.

Be a Tax Visioner, provide advice to business leaders to make educated decisions. Digitization is accelerating the timing of tax reporting and filing obligations for businesses, be prepared to provide accurate and quality-checked data on demand.

“Tax Professionals should prepare themselves to address today’s tax problems with tomorrow’s mindset. If they don’t use technology to innovate, they will become obsolete”.

Image via Shutterstock

South Korean Tax Specialists Advocate for Lowered Crypto Taxation

Members of the Korean Tax Policy Association are calling on the government to consider applying a low-level tax on crypto transactions. The South Korean administration is contemplating taxing cryptocurrencies as part of its tax reform plan for 2021, but specialists feel it requires in-depth conceptualization.

The perplexing issue of crypto taxation

The tax experts aired their sentiments during a seminar where they brainstormed and saw it fit for the Korean government to consider introducing a low level of trading tax to act as a precursor to the gradual transfer income tax.

Last month, the administration revealed that it was contemplating categorizing proceeds from crypto transactions as other income, which is subjected to a 20% tax, as is the case with lottery or prize-winnings. This decision was reached because other incomes are usually infrequent, unusual, and considerable in size.

Nevertheless, this proposal seems not to be going down well with tax experts as they stipulated that profits from crypto trading ought to be subjected to transfer income taxation as spelled out in the Income Tax Act, whereby crypto-assets should be included through prior legislation.

The Korea Blockchain Association echoes these sentiments. It asserted, “Still, related laws are still absent, and the taxation infrastructure is still insufficient to cover cryptocurrencies and, as such, some supplements need to be added on the expense calculation side.”

The association feels that the expense calculation improvement ought to begin from crypto acquisition costs as this will open the door to transfer income taxation based on trading tax imposition.

It added, “Acquisition costs need to be clarified for transfer income tax imposition, but cryptocurrency acquisition costs are hard to clarify because the currencies are traded in various exchanges, and related information and data are restricted. Infrastructure needs to be established after case-by-case trading tax imposition.”

Crypto taxation taking shape

As cryptocurrencies continue gaining traction, the issue of taxing them is making airwaves across the globe. For instance, in November 2019, the tax and payments customs authority in the United Kingdom called Her Majesty’s Revenue, and Customs (HMRC) updated its guidelines for crypto taxation pertaining to both businesses and individuals.

A similar trend was noted last month in China after the Shenzhen Taxation Bureau announced the establishment of a new blockchain tax system with Ping An Group.

The South Korean experts, therefore, feel the crypto taxation issue is a tricky one, and this is the reason why thorough consultations are needed.

Image via Shutterstock

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.”