The Internal Revenue Service ( the “IRS”) is stepping up its enforcement efforts on cryptocurrency tax reporting by targeting people who hold, trade, or use cryptocurrency for audit and compliance verification. This should be of interest to anyone who has to file a US tax return.
Beginning in 2019, the IRS announced it was sending out what it called “soft” letters to more than 10,000 people who they think may have failed to report crypto income. For the last two tax years, there has been a question on the tax return asking “ at any time during [the tax year], did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency”. Taxpayers are expected to answer it honesty under penalty of perjury. If you answer “no” when you should have answered “yes” this may be considered fraud or wilful negligence and could lead to criminal convictions and large civil penalties.
There is also a new law which requires that a recipient of more than $10,000 in cryptocurrency who is in business must collect, verify and report a sender’s personally identifiable information within 15 days. If you don’t, you could face fines and criminal prosecution.
The sanctions for non-compliance can be pretty steep in the United States. These include:
– a penalty of up to 75% of the tax you should have paid
– a fine of up to $250,000.00
– prison time
– interest on the unpaid taxes and penalties
Going forward, crypto traders and businesses who have not been tax compliant should consider amending their previous tax returns and keep detailed records of your transactions so that you can answer any questions in the event of an audit.
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