IRS wants Circle, a Boston-based financial technology company that allows trading in various types of cryptocurrency, to produce account registration information, account activity records, and other documents for clients who have completed at least $ 20,000 in transactions each year from 2016 to 2020.
The cryptocurrency has grown in importance and value over the year, but the IRS says tax reports have not followed suit.
The IRS has issued a summons to Circle, which is part of an ongoing Internal Revenue Service investigation to ensure that all kinds of cryptocurrency users in all fields report and pay their respects. tax obligations, the government explained in court documents.
The IRS treats cryptocurrency as property, and when sold for a profit, the tax collection agency will assess a capital gains tax. If, that is, the IRS knows that the transaction took place.
The IRS treats cryptocurrency as a property, and when it is sold at a profit, it levies a capital gains tax. If, that is, the IRS knows that the transaction took place.
IRS and Justice Department note they are not alleging wrongdoing by Circle – but based on relationships with some people who have Circle accounts, the federal government wants more information to see who else might owe money.
For example, an unidentified taxpayer changed the 2014-2017 returns to show $ 1.6 million in previously unreported virtual currency sales, the government said. Poloniex was one of the exchanges used by the taxpayer.
(Circle sold the Poloniex exchange at the end of 2019 and U.S. clients can no longer trade on the exchange, court documents noted.)
Massachusetts Federal District Richard Stearns approved the call Thursday, saying it was narrow enough and supported by a “reasonable basis” to believe some account holders might not follow tax laws.
“We are reviewing, and of course we hope to work with the IRS to respond to the court order,” a Circle spokesperson told MarketWatch.
The summons sends “a clear message to US taxpayers that the IRS is working to ensure they are fully compliant in their use of virtual currency,” IRS Commissioner Chuck Rettig said in a statement. “We will enforce the law where we find systemic non-compliance or fraud.”
The IRS has filed additional court citations for information from other stock exchanges in previous years, said Dale Werts, partner of Lathrop GPM in Kansas City, Missouri, where he advises companies on blockchain and cryptocurrency issues.
But it also happens during tax season, when rising cryptocurrency prices are on the minds of many investors. “This is their way of reminding you, ‘Hey, you better fill out your tax return correctly,’” he said.
For Werts, it’s not that cryptocurrency tax laws are new. As of 2014, the IRS has stated that the capital gains tax rules apply. It’s just a new crowd that has to learn the laws that have been in place for years, Werts said. “A lot of people, I found out, think cryptocurrency is ‘new’ and existing laws don’t apply. This is simply not true. “
General public call
The summons is another sign of the growing appeal of cryptocurrency, according to David Sacco, resident practitioner at Pompea College of Business at New Haven University. The IRS has its eyes on money in the emerging market – and more eyes could ultimately mean more regulation and investor protection, said Sacco, who teaches finance courses.
The IRS revised its tax documents this year to give prominence to a question about cryptocurrency. Near the top of the front page of 1040, it asks, “At any point in 2020, have you received, sold, sent, traded, or otherwise acquired a financial interest in a virtual currency?”
When Sacco looked at the redesigned 1040 the question struck him as “a little scary” but “on the other hand, that makes it like any other asset class now.”
Two accountants specializing in cryptocurrency and taxes were divided when they previously spoke with MarketWatch about whether to answer “ yes ” to simply buy currencies like bitcoin or ether. Answering “yes” doesn’t necessarily mean more taxes, they note.
Regardless, a lot has happened for cryptocurrency in 2020, and so far 2021 looks no different. Bitcoin BTCUSD,
tripled in value in 2020. Ethereum ETHUSD,
hit a record high above $ 2,000 on Friday, and was trading above on Monday, while Bitcoin was trading close to $ 58,000 on Monday.
Between 2013 and 2015, just 800 to 900 taxpayers filed cryptocurrency returns, the IRS said. That number increased from 2016 to 2018, “but the numbers are still a long way from what one would expect given the number of users, transactions and value the exchanges herald each year,” according to court documents. .
Over the years, the IRS has stepped up enforcement. In the summer of 2019, he sent over 10,000 letters to people he said couldn’t report their income in virtual currency. The taxpayer who amended the returns to report $ 1.6 million in previously unreported sales was one of the recipients of the letter, the court said.