The Internal Revenue Service (IRS) has been cracking down on crypto traders to collect taxes irrespective of the market slump of 70 percent. Moreover, the tax collection agency has obtained a court order to send summons to US taxpayers who have failed to report crypto transactions and did not pay cryptocurrency taxes profits.
To be specific, the IRS is going to issue a “John Doe summons” asking M.Y. Safra bank to disclose the data of crypto transactions for customers of the SFOX cryptocurrency broker that used the bank. As per the Department of Justice, SFOX has more than 175,000 users and over $12 billion in transactions since the year 2015.
The IRS has recognized at least 10 crypto investors and traders that leveraged the SFOX crypto broker but failed to report their crypto transactions. What makes this case stand out is that the crypto broker is relatively small, suggesting that there could be other crypto brokers with investors/traders who might have failed to report their transactions.
Charles Rettig, IRS Commissioner says that the government’s capability to get information from third parties on investors/traders failing to report their profits from digital assets is a vital tool for apprehending tax cheats.
David A. Hubbert, the Deputy Assistant Attorney General confirms that income or gains from crypto transactions are taxable and will be pursued. The IRS knows that there are taxpayers who haven’t paid their cryptocurrency taxes and the organization is set to increase its efforts and track them down using court orders as its primary weapon.
Andrew Gordon, a CPA, and president of Gordon Law Group say that tracking down tax cheats is a very high priority for the IRS. He also said that the tax authority may match the taxpayers’ returns and the growing pile of collected data to make sure they owe anything to the IRS.
Taxpayers have had a lot of questions regarding the tax return on virtual currencies since 2019. However, there is no clear guidance on due cryptocurrency taxes and transactions. In August, the Association of International Certified Professional Accountants (AICPA) asked the IRS for more guidance.
In 2021, the Biden Administration passed a bipartisan infrastructure bill worth $1.2 trillion that asks crypto brokers to provide annual tax reports, which is effective from 2023.
As we already know that deliberately avoiding taxes can get you in trouble. Also, if there’s an honest mistake while reporting your cryptocurrency taxes, you may still have to pay interest or penalties. To avoid this you can use Zenledger, a crypto tax software.
It is integrated with more than 500 crypto exchanges so that you can easily import all your transactions into the software. Further, based on your transactions, the software will quickly and automatically calculate your cost basis, fair market value, and more. What’s more? It will also auto-populate all the required tax forms as per your transactions. Lastly, you can just review your forms and pay your cryptocurrency taxes with just a few clicks.
The IRS is making efforts to work with crypto brokers and exchanges to get investor data and find out who has been evading taxes. For this, the IRS has obtained orders from the court to issue John Doe Summons. To overcome any tax miscalculation or dispute, you can use crypto tax software such as Zenledger. This software not only makes crypto tax reporting easy but quick as well.
FAQs
1. How do I avoid crypto tax?
Avoiding crypto taxes is a criminal offense and it could lead to penalties, interests, and criminal charges. Thus, avoiding taxes deliberately could lead to an audit because the IRS knows about your crypto transactions. However, if you gift crypto to someone, it is not a taxable event and receiving them as a hard fork also exempts you from paying taxes.
2. What happens if you don’t file crypto taxes?
If you don’t report your crypt taxes, you have to face an IRS audit whereafter you may have to pay interest or penalties. Or, you might even incur some criminal charges. To avoid this, you should pay your taxes on time and correctly. If you are new to the crypto tax situation, you can use crypto tax software that can help you with accurate calculations and filing.
3. Can you sell crypto and buy it back?
Yes, you can sell and buy it back. The IRS looks at digital currency as property and this means that you can sell cryptocurrency at a loss and buy it back without having to observe any waiting period in between.
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