The IRS wants Circle, a Boston-based financial technology company that allows the trading of various types of cryptocurrencies, to produce account registration information, account activity records and other materials for customers with at least 20,000 dollars in transactions each year from 2016 to 2020.
The cryptocurrency has gained prominence and value over the years, but the IRS says tax information has not been maintained.
The IRS issued Circle with a summons, which is part of an ongoing investigation by the Internal Revenue Service to ensure that all kinds of cryptocurrency users in general are reporting and paying their tax obligations, explained the government in court documents.
The IRS treats cryptocurrency as property, and when it is sold with profits, the tax collection agency will assess a capital gains tax. That is, the IRS knows the transaction has taken place.
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The IRS treats cryptocurrency as property and, when sold at a profit, will evaluate a capital gains tax. Yes, that is, the IRS knows that the transaction has taken place.
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The IRS and the Department of Justice point out that they do not report any offense by Circle, but based on relationships with some people who have Circle accounts, the feds want to get more information to see who else may have to pay tax money.
For example, an unidentified taxpayer modified the 2014-2017 returns to show $ 1.6 million in previously undeclared virtual currency sales, the government said. Poloniex was one of the exchanges used by the taxpayer.
(Circle sold the Poloniex stock exchange in late 2019 and U.S. customers can no longer trade on the stock exchange, court documents noted).
Massachusetts Federal District Richard Stearns signed the summons Thursday, saying it was narrow enough and supported by a “reasonable basis” to think some account holders might not be following tax laws.
“We are reviewing and of course look forward to working with the IRS to respond to the court order,” a Circle spokesman told MarketWatch.
The citation sends “the clear message to U.S. taxpayers that the IRS is working to ensure they fully comply with the use of virtual currency,” IRS Commissioner Chuck Rettig said in a statement. “We will enforce the law when we find systemic breach or fraud.”
The IRS has filed other lawsuits to obtain information from other exchanges in previous years, said Dale Werts, a partner at Lathrop GPM in Kansas City, Mo, where he advises companies on blockchain and cryptocurrency.
But it also comes during the fiscal season, at a time when many investor prices are raising cryptocurrency prices. “That’s his way of reminding you,‘ Hey, you better fill out the tax return properly, ’” he said.
For Werts, it is not that the tax laws on cryptocurrency are new. Since 2014, the IRS has expressed its view that the rules for taxing capital gains apply. It’s just a new crowd that has to learn the laws that carry books for years, Werts said. “I found that a lot of people believe that cryptocurrency is ‘new’ and that existing laws don’t apply. That’s not true.”
Main call
The call is another sign of the cryptocurrency’s growing appeal, according to David Sacco, a resident professional at Pompea College of Business at the University of New Haven. The IRS has its eyes set on emerging market money and ultimately more eyes may mean more regulation and protection for investors, said Sacco, who teaches finance courses.
The IRS revised its tax documentation this year to give a prominent game to a question about cryptocurrency. Near the top of the first page of 1040, it asks, “At any time in 2020, did you receive, sell, send, exchange, or acquire any financial interest in any virtual currency?”
When Sacco looked at the renovated 1040, the question seemed “a little creepy,” but “instead, it does it like any other asset class.”
Two accountants specializing in cryptocurrencies and taxes split when they previously talked to MarketWatch about whether to answer “yes” to buying only currencies like bitcoin or ether. Answering yes does not necessarily mean more taxes, they point out.
Either way, a lot has happened for cryptocurrency in 2020, and so far in 2021 it looks like it will be no different. Bitcoin BTCUSD,
tripled in value during 2020. Ethereum ETHUSD,
on Friday hit a record high of more than $ 2,000 and traded above this Monday, as Bitcoin traded near $ 58,000 on Monday.
Between 2013 and 2015, between 800 and 900 taxpayers filed informational cryptocurrency statements, the IRS said. That number increased from 2016 to 2018, “but the numbers are still much lower than expected given the number of users, transactions, and value given to the stock exchanges annually,” court records said.
Over the years, the IRS has intensified its application. In the summer of 2019 he sent more than 10,000 letters to people he believed could not report virtual currency income. The taxpayer who modified the statements to report $ 1.6 million in previously unreported sales was one of the recipients of the letter, the court file said.