More IRS encryption reports, more dangers

The IRS classifies cryptocurrency as property, which means that you can trigger a tax every time you buy something with cryptocurrency.You may be using it Pay for Tesla’s electric car — Oh, sorry, that is Impossible -A cup of coffee, even a European castle. You may pay someone for services as an independent contractor or employee. But no matter what the transaction is, you may have gains or losses, which is completely different from the income tax impact on the person you pay.

Taxation is not that simple

Dramatic fluctuations in value may even make tax impacts more difficult, and these fluctuations are often characteristic of crypto investments.Also consider paying for services: suppose you pay someone as an independent contractor; to report the payment, you need problem They are IRS Form 1099. No matter what type or amount of cryptocurrency you use, the IRS will say that you paid them the current market value of the cryptocurrency on the same day.

When you pay an independent contractor and issue a 1099 form, you cannot enter “1,000 Bitcoin (Bitcoin)”. You must pay in U.S. dollars. The contractor you pay may keep the cryptocurrency, or may sell or transfer it on the same day, but this will not affect your taxes.

What is the salary paid to employees?Salaries paid to employees in cryptocurrency are taxable and must Report On the W-2 form. They are also subject to withholding tax and payroll tax.

related: Crypto taxes, reporting and tax audits in 2021

But if you pay someone property expenses, how do you withhold taxes? You can pay some cash and some bitcoins and withhold large amounts of cash in the cash, but this can be complicated and confusing. Of course, you can also choose to pay that person as a contractor. But keep in mind that worker status issues can occur in any situation, including this situation.

Therefore, whether you like it or not, investing and trading cryptocurrencies inevitably involve major tax issues. It’s no secret that the IRS wants you to report your crypto income. You can also report cryptocurrency losses, but the IRS does not care whether you report these losses. On the other hand, income and gains are important to the IRS. The IRS still believes that the crypto community has major compliance issues, so there is ongoing mistrust and additional scrutiny.

related: Provide more IRS subpoenas for cryptocurrency exchange account holders

Review

The latest evidence of this continuing problem is that the U.S. Treasury Department Looking forward to issuing new rules Businesses that say that they receive cryptocurrency worth more than $10,000 must submit a currency transaction report, which includes the government’s name and provides detailed information. You may think that you will not be caught, but the risk is increasing. The best way to avoid penalties or worse is to disclose and report as accurately as possible.

Remember those Send 10,000 letters Encrypted taxpayers by the IRS?How All IRS subpoenas To Coinbase, Kraken and others?This Hunting is still going onAs Crypto tax issue It should be noted on IRS Form 1040. The Taxation Department of the Ministry of Justice successfully argued that the mere failure to check the checkbox related to foreign bank account reporting was intentional; the same argument can be applied to encrypted accounts.

related: Encrypted FBAR: Impact beyond

Deliberate failure brings higher penalties and increases the threat of criminal investigations.The Criminal Investigation Division of the Internal Revenue Service has met Share data and enforcement strategies on cryptocurrency tax evasion with tax authorities in other countries.

When you file a tax return, the IRS will ask a simple question: “At any time in 2020, do you receive, sell, send, exchange, or otherwise obtain any financial benefits of any virtual currency?” This sounds like Very simple, yes or no, right? What could go wrong? It does not ask for any numbers or details-although if you sell some, it should be elsewhere on your tax return. After all, since encryption is the property of the IRS, any sale will generate gains or losses. The same is true for many other transfers, even the exchange of one cryptocurrency for another. The latest step is to announce that the Ministry of Finance plans to impose new reporting requirements on cryptocurrencies.

Soon, banks and financial institutions will have to report information to the IRS. Exchanges, custodians and crypto payment services must do the same. Strangely, although the IRS stated as early as 2014 that encryption is property, not currency, the government is learning from the rules surrounding cash transactions.

cash, report For payments over $10,000, please continue to fill out IRS Form 8300.The IRS even has a list common problem About reporting cash. Over the years, companies have been required to report cash payments of more than $10,000, which has prompted people to try to avoid various (often unwise) actions to do so. So-called “structured transactions” can be a crime, even if all the cash you are trying to use belongs to you.

Therefore, if you implement a $10,000 baseline for encrypted reporting, I guess someone will try to keep something secret, but will end up in trouble by trying to avoid the report trigger.Bank Secrecy Act need Financial institutions report currency transactions in excess of $10,000 to the IRS. The law will also structure currency transactions to avoid reporting as a crime.Criminal Investigation Division of the Internal Revenue Service Enforce Cash transaction rules.

However, a 2017 report Say the law is Enforce Mainly aimed at individuals and businesses that legally obtain income.This is what happened to the former Speaker of the House of Representatives Dennis Hast, he was be accused Over-structure your own funds.In the end, he was Sentenced Up to 15 months in prison. Will encryption enforcement end in the same way?

If the $10,000 new cryptocurrency reporting threshold is the same as cash reporting, then some people may try to structure the report. If they do, and the rules are similar to the cash reporting rules, it can be very dangerous.

This article is for general reference only, and should not and should not be regarded as legal advice.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Robert W. Wood Is a tax attorney representing clients around the world and serves as a managing partner in the San Francisco office of Wood LLP. He is the author of numerous tax books and frequently writes articles on taxation for Forbes, Tax Notes, and other publications.