A former top investigator warns that “a high-stakes game” between the Internal Revenue Service (IRS) and cryptocurrency holders who fail to properly report their earnings will enter a new phase in 2021 when the tax authorities focus begins by pursuing “civil and possibly criminal sanctions”.
In an article co-authored by Don Fort today, the former head of the Internal Revenue Service’s (IRS) Criminal Investigation Department said the agency has focused its resources on educating the public on appropriate reporting guidelines, but is now shifting its focus turn becomes a stricter “enforcement”.
“The IRS has not positioned itself so quietly for a smooth transition from education to enforcement in 2021 and beyond.”
The article notes that the path begins with Coinbase, which responded to a subpoena from “John Doe” in 2018 and handed over account information on nearly 13,000 users – information that could soon lead to raids. For example, the article mentions the IRS’s request to the Luxembourg-based Bitstamp exchange for information about an American user.
The focus on crypto holders is due in part to an increasing “tax gap” – the gap between the total income from taxes that should be paid to the Treasury Department and what it actually receives – a separation where Fort and his co -Author Lawrence Sannicandro split up believing crypto holders could play an important role.
“On December 10, when Bitcoin hit new record highs, the market capitalization of cryptocurrencies was $ 524 billion,” the article reads. “Assuming cryptocurrency tax liabilities of $ 25 billion and a compliance rate of 50%, unreported cryptocurrency tax liabilities again account for around 3.2% of the $ 381 billion tax gap. Hence, unreported taxable cryptocurrency transactions are likely to contribute significantly to the tax gap. “
Ultimately, the article concludes that key trends – like the addition of a cryptocurrency question now at the top of Form 1040 – suggest the IRS is preparing for a major effort to get rid of underpayments.
“While the IRS has not yet announced many cases of tax evasion or money laundering related to virtual currency, that trend should change in 2021.”
Also, crypto holders shouldn’t try to get cute when the helmsman calls.
“History has shown that underestimating the government is child’s play.”