IRS Takes Stronger Stance Against Using Crypto for Tax Evasion
The IRS is looking for independent tech consultants to help monitor cryptocurrency taxpayers
Just last May 12, the United States Internal Revenue Service (IRS) released a Statement of Work (SOW) calling for assistance from independent consultants in their efforts to monitor and crackdown on cases of non-compliance to cryptocurrency tax.
“The Internal Revenue Service (IRS) requires consulting services to support a taxpayer examination involving virtual currency. In particular, the IRS requires consulting services to calculate taxpayers’ gains or losses as a result of their transactions involving virtual currency.” the SOW begins.
The SOW states that the IRS is looking for help from tech companies that are within the crypto tax software space niche to reconcile the taxpayers’ reported currency gains and losses on tax returns.
This process will include using software to gather data on cryptocurrency transactions through wallets, API keys, exchanges, blockchain data and other sources. With this in hand, the next step in the process is creating a detailed tax report for taxpayers that are under consideration.
The role of the technology consultants would be to generate reports that the IRS can use to compare the information being reported by taxpayers on tax returns. Should any discrepancies arise, then a more comprehensive investigation can be carried out—be it through conversation or additional audits with the taxpayer.
Taxpayers that will be subject to this process will range from small-time traders to industry experts. As reflected in the SOW, “Taxpayer transactions can be relatively simple, or in some instances, they can have hundreds of thousands of digital asset transactions in a year.”
The IRS has clearly taken steps to understand how the cryptocurrency space works; and leveraging software to get a more in-depth picture of all crypto users’ tax profiles is the next step in regulating the industry.
On a final note, as of writing, the IRS has not required any crypto tax software companies to divulge their users’ data. Users who have failed to report, or have underreported their earnings in cryptocurrency trading/investing still have an opportunity to find a legitimate cryptocurrency tax software and subject themselves to voluntary compliance before they are detected by the IRS.