I am sure you have heard that the Internal Revenue Service (IRS) started sending letters to crypto investors in order to “clarify” how the system works. They have announced this through a press release that you can read here. According to them, they have sent these letters to 10,000 crypto investors, asking some of them to pay taxes on their income generated from this market.
Of course, this has lead to many different opinions as to on what basis and why they have done this.
The official reason, they say, it’s that they consider more and more people are generating income through the crypto market. They also point out that some of them, being new to this, might not know for certain what their tax obligations are. Therefore, I see they are basically saying that their efforts represent an “information campaign”. It’s just a way of informing people on how to file their taxes on crypto-related revenue and nothing else.
It is quite obvious that crypto income, which has been in the legal eye for a very short time, might cause confusion in tax filings. The IRS positions itself saying that their goal is just to help people deal with this. From this perspective, it sounds reasonable. But is this really the case?
Given IRS’s reputation, many people who did not file taxes for crypto income might now be scared. These letters might have persuaded them to think the authorities are not joking on this subject.
Of course, I am not the only one who thought about this. Actually, many people did and have expressed skeptical opinions about what the IRS is doing. One of them is Tyson Cross, a known crypto tax attorney. He even made a Forbes report in which he explains why you should not be scared about this. They do not have any proof indicating under-payment. This is rather a fishing expedition in which they try to scare people who have not filed for crypto taxes.
This does not mean you should underpay your taxes. Especially if you receive the letter, it means you are under their radar. How did this happen?
Let’s look back at July 2017, when the IRS requested Coinbase to hand over detailed information about every user of the platform. At that time, that meant around 500 thousand people. Later that year, in November, a court order reduced the number to 14 thousand “high-transacting” users. It is possible that these letters have been sent to most of them and a few others since the numbers are roughly the same.
It is hard to guess what IRS’s next move will be. For certain, they have their eyes on the crypto market. Crypto anonymity is a good thing, but this agency can do much to break it. Sources say they want to bring companies like Apple, Google and Microsoft in front of a Grand Jury in order to obtain information to get download information from taxpayers and identify users of crypto apps.
Of course, this is totally wrong. Everyone hopes this will not happen since it is an outrageous threat to our privacy. The IRS better find smarter methods to collect taxes from the population. Infringing the privacy of everyone for the 0.04% who declare crypto capital gains is not a good idea.
Anyhow, if you want to add something, feel free to leave a comment below. If you want to get in touch with me personally, use this link.