FinTech News

IRS Reportedly Cracking Down on Unreported Crypto Income

Following the big Bitcoin boom of 2017, April 2018 saw several reminders that cryptocurrency gains needed to be reported on tax filings. Of course by that time the price of Bitcoin was about half of what it was just a few months before. Nevertheless it seems that the IRS is still intent on getting crypto owners to comply — and now, according to the Wall Street Journal, they’re cracking down on Americans who aren’t properly reporting their gains.

Last month the IRS reportedly began sending out warning letters to more than 10,000 taxpayers they believed may be violating their agencies rules. Furthermore it seems that criminal tax indictments resulting from cryptocurrency holdings could be coming down the pike. As a result, Americans who haven’t been in compliance with the IRS’s reporting rules for cryptocurrencies are being urged to make corrections.

Speaking to the Journal,  Kostelanetz & Fink criminal tax lawyer Bryan Skarlatos shared how he’s been advising clients, saying, “I tell them, ‘It’s time to put your running shoes on.’ You must get to the IRS before they find you, especially if you got a letter.” Interestingly Skarlatos compares the current crackdown to previous efforts by the IRS to ensure that offshore accounts were properly reported. Skarlatos tells WSJ he led 2,000 clients to confess to such accounts over the past decade.

At the same time, some crypto users say the IRS has failed to provide detailed guidelines, making compliance difficult. For example it’s unclear how taxpayers are to calculate the fair market value of their cryptocurrencies for the purpose of reporting. This led Coin Center senior research fellow James Foust to say, “The scary IRS letters tell people to ‘accurately’ or ‘properly’ report their transactions, but what’s that? Maybe they would have filed if they had clear answers and hadn’t felt overwhelmed.” However others are saying this is no excuse. Among them is CPA Jordan Bass who explained, “The tax framework has been clear since 2014. The IRS isn’t going to impose terrible penalties on good-faith efforts, but it will try to make an example of bad actors.”

Considering previous warnings and the current regulatory climate surrounding cryptocurrencies, the IRS’s apparent crackdown was not exactly unforeseeable. Despite that those receiving letters from the agency will likely now have some tough decisions to make. Meanwhile, even if you didn’t catch the attention of the IRS this time around, it’s probably a good idea to further research the agency’s reporting requirements and perhaps even speak with a tax professional before next April rolls around.