The IRS wants Circle, a Boston-based financial technology company that allows commerce in various types of cryptocurrencies, to produce account registration information, account activity records and other materials for customers who have had at least $ 20,000 in transactions in any year from 2016 to 2020.
The cryptocurrency gained prominence and value throughout the year, but the IRS says the fiscal reports did not follow.
The IRS issued Circle with a subpoena, which is part of an ongoing investigation by the Internal Revenue Service to ensure that all types of cryptocurrency users are reporting and paying their tax obligations, the government explained in court documents.
The IRS treats cryptocurrency as property and, when it is sold at a profit, the tax collection agency evaluates a capital gains tax. That is, if the IRS knows that the transaction has taken place.
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The IRS treats cryptocurrency as property and, when it is sold at a profit, will apply a capital gains tax. That is, if the IRS knows that the transaction has taken place.
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The IRS and the Justice Department note that they are not alleging any wrongdoing by Circle – but based on negotiations with some people who have Circle accounts, the feds want more information to see who else may be owing tax money.
For example, an unidentified contributor changed the 2014-2017 statements to show $ 1.6 million in previously unreported virtual currency sales, the government said. Poloniex was one of the exchanges that the taxpayer used.
(Circle sold the Poloniex exchange in late 2019 and customers in the United States are no longer able to trade on the exchange, court documents note.)
Massachusetts Federal District Richard Stearns signed the subpoena on Thursday, saying it was narrow enough and supported by a “reasonable basis” to think that some account holders may not be following tax laws.
“We are reviewing and, of course, we look forward to working in collaboration with the IRS to respond to the court order,” a Circle spokesman told MarketWatch.
The subpoena “sends a clear message to US taxpayers that the IRS is working to ensure that they are in full compliance with the use of virtual currency,” said IRS commissioner Chuck Rettig in a statement. “We will apply the law where we find systematic non-compliance or fraud.”
The IRS has filed other court orders seeking information from other exchanges in previous years, said Dale Werts, a partner at Lathrop GPM in Kansas City, Missouri, where he advises companies on blockchain and cryptocurrency issues.
But it is also coming during the tax season, at a time 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 properly,'” he said.
For Werts, it is not that the tax laws on cryptocurrencies are new. Since 2014, the IRS has stated its opinion that the capital gains taxation rules apply. It’s just a new crowd that needs to learn the laws that have been in the books for years, said Werts. “Many people, I discovered, believe that cryptocurrency is ‘new’ and that existing laws do not apply. This is simply not true. “
Mainstream appeal
The summons is another sign of the growing popular appeal of cryptocurrency, according to David Sacco, a resident doctor at the Pompea College of Business at the University of New Haven. The IRS is eyeing the money in the emerging market – and more eyes can mean more regulation and investor protection, said Sacco, who teaches finance courses.
The IRS revised its tax paperwork this year to highlight a question about cryptocurrency. Near the top of the 1040 front page, he asks, “At some point during 2020, did you receive, sell, send, exchange or acquire any financial interest in any virtual currency?”
When Sacco examined the retired 1040, the question hit him as “a little scary”, but “on the other hand, he looks like any other asset class now”.
Two accountants specializing in cryptocurrency and taxes split when they previously spoke with MarketWatch about whether to answer “yes” just by buying coins like bitcoin or ether. Answering “yes” does not necessarily mean more taxes, they note.
Anyway, a lot has happened to the cryptocurrency in 2020, and 2021 so far does not seem to be any different. Bitcoin BTCUSD,
tripled in value in 2020. Ethereum ETHUSD,
it hit a record high above $ 2,000 on Friday, and was traded above that on Monday, with Bitcoin trading close to $ 58,000 on Monday.
Between 2013 and 2015, only 800 to 900 contributors filed declarations reporting cryptocurrency, the IRS said. That number increased from 2016 to 2018, “but the numbers are still far below what would be expected, given the number of users, transactions and value that exchanges disclose occur annually”, claim the lawsuits.
Over the years, the IRS has stepped up enforcement. In the summer of 2019, he sent more than 10,000 letters to people he potentially believed could not report revenue in virtual currency. The taxpayer who changed the statements to report $ 1.6 million in previously undeclared sales was one of the recipients of the letter, the lawsuit said.