The IRS wants Circle, a Boston-based financial technology company that can trade with different 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 every year from 2016 to 2020.
Cryptocurrencies gained importance and value during the year, but the IRS says tax reporting has not kept pace.
The IRS issued a summons to the Circle, which is part of an ongoing investigation by the Internal Revenue Service to ensure that all kinds of cryptocurrency users around the world report and pay their tax obligations, the government explained in documents the court.
The IRS treats cryptocurrency as property and, when sold profitably, 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 property and, when sold profitably, will assess a capital gains tax. If, that is, the IRS knows that the transaction took place.
”
The IRS and the Justice Department say they do not support any wrongdoing on the part of Circle – but based on relationships with some people who have Circle accounts, the feds want more information to see who else could pay taxes.
For example, an unidentified taxpayer amended the 2014-2017 statements to show $ 1.6 million in previously undeclared 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 customers in America can no longer trade on the stock exchange, court documents noted.)
Massachusetts Federal District Richard Stearns signed the summons Thursday, saying it is narrow enough and supported by a “reasonable basis” to believe that some account holders may not comply with tax laws.
“We are reviewing and, of course, expecting to work with the IRS to respond to the court order,” a Circle spokesman told MarketWatch.
The summons sends “a clear message to U.S. taxpayers that the IRS is working to ensure that they are fully compliant with the use of virtual currency,” IRS Commissioner Chuck Rettig said in a statement. “We will apply the law where we find systemic non-compliance or fraud.”
The IRS has filed other lawsuits to seek information from other stock exchanges in previous years, said Dale Werts, a partner at Lathrop GPM in Kansas City, Mo, where he advises companies on blockchain and cryptocurrency issues.
But it also comes during the fiscal season, at a time when rising cryptocurrency prices are at the forefront for many investors. “This is their way of reminding you, ‘Hey, you better fill out your tax return correctly,'” he said.
For Werts, tax laws on cryptocurrency are not new. Since 2014, the IRS has expressed the view that the rules on taxation of capital gains apply. It’s just a new crowd that has to learn the laws that have been on the books for years, Werts said. “We have found that many people believe that cryptocurrency is ‘new’ and that existing laws do not apply. This is not true. ”
General appeal
The convocation is another sign of the growing general appeal of cryptocurrencies, according to David Sacco, a resident practitioner at Pompea College of Business at the University of New Haven. The IRS has its eyes on emerging market money – and more eyes may eventually mean more regulation and protection for investors, said Sacco, who teaches finance courses.
The IRS revised its tax documents this year to give an important role to a question about cryptocurrency. Near the top of the first page of 1040, the question is, “At any time in 2020, have you received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency?”
When Sacco looked over 1040 renovated, the question seemed “a little creepy,” but “on the other hand, it makes it like any other asset class now.”
Two accountants specializing in cryptocurrencies and taxes were split when they previously discussed with MarketWatch whether to answer “yes” to simply buying currencies such as bitcoin or ether. The answer to “yes” does not necessarily mean more taxes, they note.
In any case, a lot has happened for cryptocurrencies in 2020, and 2021 so far does not seem to be any different. Bitcoin BTCUSD,
tripled in value in 2020. Ethereum ETHUSD,
reached a record high of more than $ 2,000 on Friday and traded above Monday, as Bitcoin traded nearly $ 58,000 on Monday.
Between 2013 and 2015, only 800 to 900 taxpayers filed cryptocurrency reporting statements, the IRS said. This number increased from 2016 to 2018, “but the figures are still much lower than expected, given the number of users, transactions and the value that exchanges publish annually,” court documents said.
Over the years, the IRS has stepped up enforcement. In the summer of 2019, he sent more than 10,000 letters to people he thought could not report income in virtual currency. The taxpayer who amended the statements to report previously undeclared sales of $ 1.6 million was one of the addressees of the letter, he said in the court file.