IRS Sends Letters to Cryptocurrency Owners - How to Get Compliant (Golding & Golding)

IRS Sends Letters to Cryptocurrency Owners – How to Get Compliant (Golding & Golding)

IRS Sends Letters to Cryptocurrency Owners – How to Get Compliant

The IRS is making a full-court press against cryptocurrency. Recently, in July 2019 the Internal Revenue Service began issuing “IRS Letter 6174,” which puts Taxpayers on notice that the IRS is seeking information regarding cryptocurrency.

IRS Begins Sending “Cryptocurrency Letters”

Cryptocurrency (IRS uses Cryptocurrency and Bitcoin interchangeably) has many aspects to it.

First and foremost, from a U.S. tax perspective, cryptocurrency is considered property, and not currency. This will have a major impact on issues involving taxation of exchanges, general income tax principles, and other related tax matters.

Beyond IRS Taxation issues — which may not result in any liability — there is also the issue of “reporting” cryptocurrency.

Primarily, the Internal Revenue Service is concerned about filing Schedule B, D, and Form 8949 — along with offshore cryptocurrency. The verdict is not out yet on which forms will be required, and whether certain accounts with crypto currency may require reporting.

*Whether foreign cryptocurrency must be reported on various forms such as the FBAR and/or Form 8938 requires a very complex anaysis. Still, it is safe to say that the IRS has made Offshore Cryptocurrency a key enforcement priority. So much so, that last year the IRS joined J5 — in which one of its primary focuses is dedicated to uncovering unreported cryptocurrency.

Here is a recent article by Forbes, in which Mr. Sean M. Golding, Board Certified Tax Law Specialist – Board Certified Tax law Specialist was interviewed about this specific topic of offshore cryptocurrency reporting.

How the IRS Find Unreported Crypto? 

The IRS recently had its own session detailing how agents should consider seeking your crypto currency information.

Here are some important takeaways:

Grand Jury Subpoena

The IRS is not against issuing a Grand Jury Subpoena in order to obtain individual account information, including financial accounts, bank accounts, credit card information, and PayPal accounts.

Wire Transfers

The IRS will evaluate wire transfers to determine whether there is any cryptocurrency being exchanged, and whether it was properly reported and taxed.

Bank Records

The IRS may contact individual banks to obtain financial records about different accounts, which may contain information relating to cryotocurrency.

Cryptocurrency Wallet Services

The IRS may contact cryptocurrency wallet services, and issue a subpoena for records.

Bitcoin Block Chain Explorers

The IRS will use “Bitcoin Block Chain Explorers” to research various sources of information such as cryptocurrency value, transaction times, and transaction locations.

Offshore Cryptocurrency & Increased Penalty Risk

When it comes to cryptocurrency being held offshore or at a Foreign Financial Institution it is important that the crypotocurrency holder properly report the information to the IRS. 

The failure to do so may result in significant fines and penalties — which may far exceed any tax liability.

Out of IRS Foreign Asset or Account Compliance?

If you are out of IRS Offshore Compliance, you have options.

There are 5 main versions of the program:

Golding & Golding, Board Certified in Tax Law

We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.

Golding & Golding is the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.