IRS Hires Special Investigators; Continues Quest to Nail Crypto-holding Tax Evaders
I’ve heard it said here in the U.S. that there are three things you never want to do battle with – the “I”, the “R”, and the “S” i.e. the IRS.
While the saying is silly, and elicits laughter at times, crypto holders may not find it funny at all as the taxing authority has set its sights on the space with vigor. It’s searching for people who are failing to pay taxes on their crypto profits.
Unlike the U.S. Securities and Exchange Commission, which treats cryptos as securities, or the U.S. Commodities Futures Trading Commission, which treats them as commodities, the IRS treats them as property. For that reason, holders must pay property taxes on their crypto profits in many cases.
It wasn’t enough it seems to just go after Coinbase and its users to identify who was failing to pay taxes on their crypto profits. Now the Internal Revenue Service has set its sights on how it can glean information based on the technology that underpins cryptos - Blockchain.
It is being reported that the IRS has assembled a team of 10 investigators who are focused on international crimes. With the power to arrest people who are suspected of tax evasion, these investigators will prove to be powers to be reckoned with.
Also, these investigators are reported to be highly skilled in the Blockchain technology.
“It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion.”
The business media outlet also spoke to tax attorneys who weighed in on the issue. Lisa Zarlenga, a tax attorney at Steptoe & Johnson told Bloomberg:
“The biggest challenge for the IRS is this really new technology. They need to educate themselves on what is a Blockchain, how do we learn what’s on the Blockchain, and how do we follow it?”
On the heels of Coinbase ruling
News of these new investigators comes within months of the crypto space learning that the IRS was successful in a case involving Coinbase. The IRS made its case that there was a legitimate purpose to investigate the “reporting gap between the number of virtual currency users Coinbase claims to have had during the summons period and U.S. bitcoin users reporting gains or losses to the IRS.”
The federal judge who made the ruling noted that Coinbase had at least 5.9 million customers who completed six billion transactions. However, only 800 to 900 taxpayers a year had electronically filed returns with a property description related to Bitcoin between 2013 through 2015.
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