The IRS has sent warning letters to over 10,000 customers who have used Coinbase and can be declared as crypto investors with full confidence. Many experts have weighed in to offer their advice to retail investors, encouraging them to declare their assets and pay their taxes instead of trying to skirt by regulation. Those who have already submitted their returns to the IRS are urged to amend their filing to reflect their cryptocurrency holdings, as reported by Bloomberg, August 1, 2019.
Making the Right Choice
This is a crucial point of time for the cryptocurrency market and investors. With regulators taking an active approach to tackle issues regarding taxation and usage of cryptocurrency, investors must act in line with long term benefits.
Hiding from the IRS is futile for most retail investors who don’t have the resources to keep their income hidden in the long run. Moreover, the few thousands of dollars the average person would save in tax by not declaring their crypto holdings is not worth the risk of legal action and potential jail time.
Don Fort, chief of the IRS’s criminal investigation division, has assured the public that many tax evasion cases with regard to cryptocurrency are being built and will be announced soon. Their database of cryptocurrency users is most likely limited to the Coinbase customers whose data was given to the IRS.
The agency wants to force crypto tax evaders into compliance rather than taking legal action against them.
There were two types of letters sent out by the IRS: one had a lighter tone and warned individuals they have tax obligations they may be unaware of and urged them to amend their returns, the other ordered recipients to respond in writing, giving a history of their crypto dealings from 2013 to 2017 before a stipulated deadline.
What Institutions and Large Traders Have Been Doing
The majority of the large traders are said to have disclosed their transactions on their income tax filings and paid their necessary tax obligations in full. While it cannot be said that they are honoring their full obligations, institutions and those who derive a significant portion of their income from crypto have no choice but no declare their holdings and gains.
An important note to keep in mind is that the IRS requires taxpayers to disclose all crypto sales even if there is no tax owed on the sale.