• 25 June, 2024
News

IRS Ramps Up Efforts on Crypto Tax Enforcement: Report

In a January press release, the Internal Revenue Service (IRS) reminded taxpayers about reporting cryptocurrency and digital asset income on their 2023 tax returns. The IRS is ramping up efforts to collect taxes on cryptocurrency and this makes it vital for investors to report their crypto activity, regardless of the amount or platform used. Head of Tax Strategy at CoinTracker, Shehan Chandrasekera, highlighted this shift in the importance of understanding and fulfilling tax obligations in the crypto space in an X thread:

Crypto transactions have become a major focus for the IRS due to concerns about the “tax gap” which is the difference between taxes owed and what’s actually collected. This gap widened by a staggering $688 billion from 2020 to 2021, and regulators believe crypto could be a significant contributor.

To bridge this gap, the IRS is intensifying enforcement efforts, including audits. The authority emphasizes crypto reporting with its Form 1040 placement for individual and business filings. It highlights the agency’s focus and so failing to report crypto activity here could raise red flags.

Source: TheCryptoCPA

In parallel to this, a federal grand jury indicted Frank Richard Ahlgren III of Texas on February 7 for allegedly filing false tax returns and structuring cash deposits to avoid reporting requirements related to his Bitcoin gains. The indictment alleged that between 2017 and 2019, Ahlgren underreported or failed to report the sale of $4 million worth of Bitcoin. This resulted in substantial capital gains tax evasion. 

In 2017, he allegedly used the proceeds from selling $3.7 million worth of Bitcoin to purchase a residence. To conceal this transaction, the indictment details that Ahlgren inflated the original purchase price of the Bitcoin in his tax return, minimizing his reported capital gains. Additionally, he allegedly failed to report subsequent Bitcoin sales exceeding $650,000 in 2018 and 2019.

Many centralized exchanges are legally obligated to report their user’s crypto activity to the IRS. Receiving a 1099-MISC, 1099-B, or 1099-K form signifies that information has already been shared. Discrepancies between reported income and the information provided by exchanges can trigger IRS intervention which can potentially lead to penalties and audits.

While anonymity persists in some decentralized wallets and exchanges, stricter regulations, like the proposed “Section 6045 Broker regulations,” could soon require even these platforms to implement know-your-customer (KYC) protocols. Additionally, the IRS utilizes sophisticated tools like Chainalysis to track transactions across various wallets, making anonymity increasingly difficult.

Filing an accurate tax return starts a three-year window for IRS audits. Neglecting to file however leaves the user perpetually vulnerable. This emphasizes the importance of timely and accurate reporting to minimize potential future risks.

Market Watch: $PEPE and $WIF's Influence on Meme Coin Trading Read Previous

Market Watch: $PEPE and $WIF's Influence on Meme Coin Trading

Expert Spots $INJ's Bullish Signs, Predicts New Highs Soon Read Next

Expert Spots $INJ's Bullish Signs, Predicts New Highs Soon