Updated: Feb 1
Back in January, I wrote about the Tax Rules of Virtual Currency. Well now there was a new blurb in the news about what IRS is now doing to catch folks who think they can hide their profits from Crypto transactions.
The IRS is demanding cryptocurrency exchanges release user information through “John Doe” summons. Once the IRS has issued such a summon, the exchanges are required by law to release requested user info to the IRS, who uses it to match against tax returns filed to see if anybody failed to report a sale.
Recently, the IRS issued such a summons to crypto exchanges Kraken and Poloniex for information from 2016-2020 on accounts with at least $20,000 in transaction value in any of those years. Next, the IRS will send out notices to folks who have come under investigation for not reporting their crypto transactions in those exchanges.
The IRS sent out similar notices after analyzing the data they received from a “John Doe” summons done to the Coinbase exchange last year.
I don’t know if they already did a “John Doe” summons to Bitcoin yet. Clearly, that is the “holy grail” for the IRS since that is the largest number of crypto users out there by far. They may have already issued such a Bitcoin summons, and then again, they may not. Remember that on the 2020 tax returns, the IRS is asking you to volunteer if you are involved in cryptocurrency? If they wait until you answer “no” under penalties of perjury, then find out you didn’t answer truthfully when they go through their “John Doe” summons, you will have committed perjury, which is a criminal offense, not a civil one. (Do you hear prison sentence?)
What should you be concerned about? If you properly reported all crypto transactions each year, and answered the question about cryptocurrency on your 2020 return correctly, then …NOTHING! If you forgot (on purpose or by accident) to report all your crypto transactions, it is strongly suggested that you file amended returns before the IRS sends you one of those “notices.” Even worse, if you didn’t answer the 2020 tax return question truthfully, that is another reason for you to amend your 2020 return and correct that ASAP, before the IRS catches on and sends you a notice.
Did you hear? Prov 30:6 says, “Don’t you add to his words, lest he reprove you, and you be found a liar.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.