- On 26 July 2019, the IRS informed those engaged in virtual currency usage that they have started to send educational letters to taxpayers.
- Coinbase notified approximately 13,000 of its users that it provided the IRS with their taxpayer Identification
This week, The United States Internal Revenue Service(IRS) released the draft 2020 form which states the details for any candidate who receives, sells, sends, exchanges, or acquires any financial interest or transact with any virtual currency at any time during 2020?
The IRS has been slowly providing guidelines and warnings for monitoring and taxing the use and trading of virtual currency over the last few years. Recently, on 26 July 2019, the IRS informed those engaged in virtual currency usage that they have started to send educational letters to taxpayers.
How did the Taxation policy work
As mentioned by Shehan Chandrasekera, Certified Public Accountant (CPA) and CoinTracker ‘s Head of Tax Strategy, Not everyone has to file a Schedule 1 though it is only for people who have income apart from traditional W-2 job earnings, such as company or rental income or alimony.
Today, there is less information on virtual currency taxes but enough to realize they are taxable. The IRS and FinCEN will monitor the use of virtual currencies, MSBs, Exchanges, etc. There have been warnings and announcements from both the IRS and FinCEN and in the past few years the world of virtual currencies has exploded.
The IRS considers that taxpayers need to be educated on basic issues related to the taxation of virtual currency transactions and has made it a priority for the IRS to provide guidelines, to be released “sooner.”
Initiative by IRS and John Doe Summons
Before the John Doe Summons, the only true guidance given by the IRS concerning the taxation of virtual currencies was Notice 2014-21, in which, among other things, the IRS provided that cryptocurrency should be regarded as property rather than as money.
The IRS suspected (and still believes) that tax defined requirements associated with cryptocurrencies are common and that virtual currency earnings have been widely underused, according to United States v. Coinbase. In support of this view, the IRS has advised that its virtual currency research team, which was established by the IRS in 2016, will review electronically-filed Form 8949, Sales and Other Provisions of many Capital Asset Dispositions, and found just about 800 and 900 taxpayers registered Bitcoin transactions in 2013 – 2015, while Coinbase claimed to have served 5.9 million customers and traded $6 billion in Bitcoin via its buy / sell trading feature by the end of 2015.
Such results are an underreporting of the selling or trading of bitcoins by US taxpayers.
Government obligation to enforce the summons, as the Court rejected Coinbase’s motion on 28 November 2017 asking Coinbase to respond to the summons. In February 2018, Coinbase notified approximately 13,000 of its users that it provided the IRS with their taxpayer Identification, name, date of birth, address and past transaction and requested details on U.S. customer accounts engaging in $20,000 or more transactions.