IRS begins tax clampdown on unreported cryptocurrency profits

If you’ve been trading but not declaring, the tax service might be on your case.
Written by Charlie Osborne, Contributing Writer

Cryptocurrency investors in the United States are receiving letters from the Internal Revenue Service (IRS) which are proposing backdated tax payments relating to the trade of virtual assets. 

As reported by Bloomberg, some traders are receiving notices asking for input on revised tax returns, based on estimates of profit generated by cryptocurrency-related activities. 

The CP2000 notices have been sent in recent weeks and while they do acknowledge mistakes in past tax returns might be due to cryptocurrency platforms and exchanges rather than individuals, they do signal a clampdown by the IRS on the burgeoning industry. 

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In July, the tax and revenue service also sent warnings to investors to make them aware that tax may be owed on their trading activities. Some investors received demands for the disclosure of cryptocurrency trades between 2013 and 2017. 

An IRS spokesperson told the publication that the latest batch of warning notices are sent to taxpayers when discrepancies between tax returns and information obtained from third parties are flagged. 

A letter shared with CoinDesk estimates that an investor owes close to $4,000 in taxes and interest for potentially misreported cryptocurrency profits during the 2017 fiscal year. 

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"We received information from third parties such as employers or financial institutions that doesn't match the information you reported on your tax return," the letter reads. 

Recipients can accept the changes and make any further payments required or they can challenge the IRS' decision if they have supporting evidence. 

According to the IRS website CP2000 receivers should respond within 30 days even if only to say they need more time. The notices are not straight bills or demands, but what the IRS calls "a proposal [that] informs you about the information we have received, and how it affects your tax."

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The IRS won a landmark case against Coinbase in 2017 which forced the cryptocurrency exchange to hand over the records of 14,000 customers that purchased, sold, or obtained over $20,000 in cryptocurrency between 2013 and 2015. 

In July, The Group of Twenty (G20) formally backed a new set of cryptocurrency guidelines which could see similar tax chasing occur worldwide. 

The international forum, including Europe, the US, and China, announced its support for a new set of Financial Action Task Force (FATF) guidelines which are designed to make money laundering through cryptocurrency more difficult. The changes would also require exchanges to hold more information on their customers for use by regulators and law enforcement when deemed necessary. 

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