|IRS...we're coming to take you away...ha ha hee hee, to the funny farm|
well, not me...ha ha hee
The United States Internal Revenue Service (IRS) is going after American crypto investors. The agency has determined cryptocurrency to be one of five areas where it is easy to avoid taxes.
Through unknown means — possibly including data self-reported by the big exchanges — the IRS has put together a list of known and suspected tax delinquents. They are sending out a batch of 10,000 letters, which will all be delivered by August. If you get one, watch out.
This action by the IRS unveils a new front in the 21st century “tax war” that has already broken out. The tax war is a kind of arms race, with cutting edge technology giving capability and firepower to both sides. Technology is enabling new ways to evade the grasping hand of the state. But it is also making the state more powerful, while giving it more tools to track and visualize in real time.
Befitting its role as a giant, faceless bureaucracy, the IRS is sending out the 10,000 crypto tax compliance letters in three versions: 6173, 6174, and 6174-A.
The 6174 and 6174-A versions are a kind of “heads up” for crypto investors who may or may not be compliant. The 6173 version, on the other hand, is for those accused of noncompliance and starts like this:
Why we're writing to you
We have information that you have had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions which include cryptocurrency and non-crypto virtual currencies.
Virtual currency is considered property for federal income tax purposes. Generally, U.S. taxpayers must report all sales, exchanges, and other dispositions of virtual currency…
If a crypto investor receives a 6173 letter, they may be subjected to penalties and fines. In an effort to draw in more revenue, the IRS has said it will consider reducing or waiving penalties for those who self-report before they receive a letter.
We don't know where the IRS got its info on who to send letters to — it isn't saying — but odds are good the data came from the various exchanges. Coinbase, for example, is estimated to have more than 30 million users.