Fear of being dominated by the US Internal Revenue Service: Users with more than 10,000 cryptocurrencies will receive a tax "warning"

On July 26, the US Internal Revenue Service (IRS) announced that it had begun sending letters to US cryptocurrency holders recommending that they pay taxes. The agency said that by the end of August, three types of letters will be sent to more than 10,000 taxpayers. Prior to this, the IRS Task Force recently published a document showing how tax authorities should investigate digital currency users, and the recommendations given are worrisome.

IRS collects more than 10,000 user information

The IRS issued a press release announcing its plan to send a letter to Americans holding digital currencies. These letters will be sent to taxpayers who have participated in virtual currency transactions or have not correctly filed transactions. The IRS said the letters were "educational" and began issuing notices last week. The tax agency has received information from more than 10,000 Americans who will receive notice.

IRS Director Chuck Rettig explained:

• The US Internal Revenue Service warns that bitcoin causes a fall in the price of 7/27
• Bitcoin is still expected to reach $42,000 by the end of the year? Hedge fund CEO also believes that it can reach $356,000 in 2021.
• BTC stabilized and rebounded back to 10,000 US dollars, the shock market is coming to an end

“Taxpayers should take these letters seriously, review their tax returns, and amend past tax returns, pay taxes, interest and fines when appropriate. The IRS is focusing on our efforts in virtual currency, including Use of data analysis. We focus on law enforcement and help taxpayers fully understand and fulfill their obligations."

The Virtual Money Compliance Campaign is aimed at individuals and businesses that do not comply with US tax laws. The IRS emphasizes that cryptocurrency compliance follows the “general tax principles applicable to all property transactions”. The event was originally led by John Cardone's withholding and international personal compliance department.

Update Digital Asset Tax Guidelines

Prior to this, the IRS began enforcement actions against violations. The IRS began its activities by expanding the scope of services and checking taxpayers by issuing educational resources, conducting audits and criminal investigations.

The IRS recently announced that they will issue guidelines on the processing of digital currency taxes. In September 2018, the US Congress sent a letter to the IRS Director, urging the agency to issue updated guidance to help taxpayers better understand and fulfill their tax obligations when using virtual currency.

Rettig responded by saying:

“I agree with you that taxpayers should have a clear understanding of the basic issues associated with virtual currency transactions and have made the publication guidelines a priority for the IRS.”

Combating violations

In addition, in the past few years, IRS, FBI and other agencies have been suing a large number of Americans involved in illegal currency transfer activities, especially traders trading at Localbitcoins.com.

On July 9th, a slide by James Daniels, head of the IRS-CI cybercrime department, was posted online and a rigorous strategy was put forward to investigate cryptocurrency users. It is recommended to investigate the user's social media account and ask their family. If needed, the agency can even apply for relevant subpoenas to get the necessary information from Apple, Microsoft and Google.

When the New York Times asked the IRS representative about the letter to be sent, the agency refused to disclose the source of information for the 10,000 people. The New York Times also asked Coinbase, a representative of Coinbase declined to comment on the matter when the IRS asked the company to collect data on 13,000 users, which meant that the exchange was a source of information for the IRS.

Regarding the letter to be sent in August this year, people will receive three different versions: 6173, 6174 or 6174-A. In all notices, letter 6173 requires the recipient to sign and certify that it complies with US tax laws. “These three editions are designed to help taxpayers understand their tax and reporting obligations and how to correct past mistakes,” the statement said.

“Taxpayers can get the appropriate information on IRS.gov, including which forms to use and the specific timeline, and where the documents should be sent,” the press release added. Traders at Reddit Forum r/Bitcoinmarkets said that some people have received letters and assessments. The IRS statement on Friday has repeatedly emphasized that tax enforcement and investigations will continue. At the end of the press release, the IRS emphasizes:

“Virtual currency has always been a key area of ​​IRS criminal investigation.”

The press release also referred to Announcement 2014-21, the only guidance issued by the agency on digital assets. This document treats virtual currency as property for federal tax purposes.

The agency stated that it will release more legal guidance in this regard in the near future. Although the IRS has not updated its guidance for five years, the agency has warned that enforcement of violations will continue.

“ Taxpayers who do not correctly declare virtual currency transaction income tax will bear taxes, fines and interest when appropriate. In some cases, taxpayers may be subject to criminal prosecution.”

We will continue to update Blocking; if you have any questions or suggestions, please contact us!