A former top researcher warns that “a high-stakes game of chicken” between the Internal Revenue Service (IRS) and cryptocurrency holders who do not report their earnings correctly will enter a new phase in 2021 as the tax collection agency begins to concentrate. on the pursuit of “civil and possibly criminal sanctions”.
In an article co-authored by Don Fort today, the former chief of the Internal Revenue Service’s (IRS) criminal investigation department said that while the agency has so far focused its resources on educating the public about proper reporting guidelines, it will now turn to stricter ‘enforcement’ ‘.
“The IRS has not so quietly positioned itself for a smooth transition from education to enforcement in 2021 and beyond.”
The article notes that the trail starts with Coinbase, who answered a “ John Doe ” subpoena in 2018, handing over account information for nearly 13,000 users – information that could soon lead to a crackdown. For example, the article cites the IRS’s request made after the Luxembourg-based stock exchange Bitstamp for information about a US user.
The focus on crypto holders is due in part to a widening ‘tax gap’ – the gap between the total tax revenue that should be paid to the Treasury verses what it actually receives – a disconnect in which Fort and his co-author Lawrence Sannicandro believe that crypto holders can play an important role.
“On December 10, with new record highs for Bitcoin, the market cap of cryptocurrencies was $ 524 billion,” the article read. “Assuming cryptocurrency-related tax liabilities of $ 25 billion and a 50% compliance rate, unreported cryptocurrency tax liabilities again account for approximately 3.2% of the $ 381 billion tax gap. So it is likely that unreported taxable cryptocurrency transactions are contributing significantly to the tax gap. “
Ultimately, the article concludes that important trends – such as the addition of a question about cryptocurrency now prominently at the top of Form 1040 – indicate the IRS is gearing up for widespread efforts to eliminate underpayment.
“While the IRS has not yet announced many common cases of tax evasion or money laundering involving virtual currencies, that trend should change in 2021.”
Plus, crypto holders shouldn’t try to get cute when the tax guy calls.
“History has shown that underestimating government is a foolish game.”