Crypto holders are believed to be a major driving force behind a widening 'tax gap' in the United States.
Bitcoin is entering 2021 in the best place its ever been. With strong movements past $30,000, the whole world is waiting to see how high Bitcoin will go. But while BTC hodlers’ pockets are busting with cash, the United States’ tax arm, also known as the Internal Revenue Service (IRS), is gearing up for a crackdown on unchecked earnings.
Indeed, in an article for Law360, Don Fort (who previously headed the IRS’ criminal investigation division) said that while the tax agency has was previously taking a more “educational” attitude toward cryptocurrency hodlers, school days are over: the time for “enforcement” has come.
“The IRS has been not-so-quietly positioning itself for a smooth transition from education to enforcement in 2021 and beyond,” he wrote. The article was co-authored by Lawrence Sannicandro, a lawyer who has focused his career on federal and state tax controversies. Both men are part of the team at Kostelanetz & Fink, LLP.
“[...] Even though the IRS has not yet announced many mainstream tax evasion or money laundering cases involving virtual currency, that trend should change in 2021,” Fort and Sannicandro wrote.
Indeed, in December 2020, CoinTelegraph reported on the addition of a crypto-related question at the top of form 1040. This seems to indicate that the IRS is preparing to eradicate underpayment.
In 2018, Coinbase was forced to hand over account information for some 13,000 users; in the following years, many of those 13,000 individuals have been the recipients of letters from the tax department. The letters have advised cryptocurrency owners that if they did not accurately report their cryptocurrency holdings on federal income tax returns, they need to “file amended or delinquent returns.”
Since then, Coinbase has also integrated features to help its users file tax returns on their holdings accurately and on time.
However, Coinbase may only be the beginning: the article also specifically mentioned that the IRS went so far as to request information from Luxembourg-based exchange Bitstamp on one of its American users.
Crypto holders could be attributing to a widening “tax gap” in the USA
The IRS’s coming enforcement on crypto hodlers is apparently in part because of a widening “tax gap” in the United States. In other words, the average amount of what individuals and other entities should owe the government is increasingly lower than what they actually pay.
Don Fort and his co-author both believe that crypto hodlers could be playing a big part in the apparent growth of the tax gap. The IRS seems to share a similar belief.
“Assuming cryptocurrency-related tax liabilities of $25 billion and a 50% compliance rate, unreported cryptocurrency tax liabilities again account for around 3.2% of the $381 billion tax gap. Thus, it is likely that unreported taxable cryptocurrency transactions are contributing significantly to the tax gap.”
Bitcoin is entering 2021 in the best place its ever been. With strong movements past $30,000, the whole world is waiting to see how high Bitcoin will go. But while BTC hodlers’ pockets are busting with cash, the United States’ tax arm, also known as the Internal Revenue Service (IRS), is gearing up for a crackdown on unchecked earnings.
Indeed, in an article for Law360, Don Fort (who previously headed the IRS’ criminal investigation division) said that while the tax agency has was previously taking a more “educational” attitude toward cryptocurrency hodlers, school days are over: the time for “enforcement” has come.
“The IRS has been not-so-quietly positioning itself for a smooth transition from education to enforcement in 2021 and beyond,” he wrote. The article was co-authored by Lawrence Sannicandro, a lawyer who has focused his career on federal and state tax controversies. Both men are part of the team at Kostelanetz & Fink, LLP.
“[...] Even though the IRS has not yet announced many mainstream tax evasion or money laundering cases involving virtual currency, that trend should change in 2021,” Fort and Sannicandro wrote.
Indeed, in December 2020, CoinTelegraph reported on the addition of a crypto-related question at the top of form 1040. This seems to indicate that the IRS is preparing to eradicate underpayment.
In 2018, Coinbase was forced to hand over account information for some 13,000 users; in the following years, many of those 13,000 individuals have been the recipients of letters from the tax department. The letters have advised cryptocurrency owners that if they did not accurately report their cryptocurrency holdings on federal income tax returns, they need to “file amended or delinquent returns.”
Since then, Coinbase has also integrated features to help its users file tax returns on their holdings accurately and on time.
However, Coinbase may only be the beginning: the article also specifically mentioned that the IRS went so far as to request information from Luxembourg-based exchange Bitstamp on one of its American users.
Crypto holders could be attributing to a widening “tax gap” in the USA
The IRS’s coming enforcement on crypto hodlers is apparently in part because of a widening “tax gap” in the United States. In other words, the average amount of what individuals and other entities should owe the government is increasingly lower than what they actually pay.
Don Fort and his co-author both believe that crypto hodlers could be playing a big part in the apparent growth of the tax gap. The IRS seems to share a similar belief.
“Assuming cryptocurrency-related tax liabilities of $25 billion and a 50% compliance rate, unreported cryptocurrency tax liabilities again account for around 3.2% of the $381 billion tax gap. Thus, it is likely that unreported taxable cryptocurrency transactions are contributing significantly to the tax gap.”
Rachel is a self-taught crypto geek and a passionate writer. She believes in the power that the written word has to educate, connect and empower individuals to make positive and powerful financial choices. She is the Podcast Host and a Cryptocurrency Editor at Finance Magnates.
FM's Editor-in-Chief Yam Yehoshua on how the newsroom evaluates stories.
FM's Editor-in-Chief Yam Yehoshua on how the newsroom evaluates stories.
FM's Editor-in-Chief Yam Yehoshua on how the newsroom evaluates stories.
FM's Editor-in-Chief Yam Yehoshua on how the newsroom evaluates stories.
Matthew Smith, Group CEO at EC Markets, speaking at FMLS:24
Matthew Smith, Group CEO at EC Markets, speaking at FMLS:24
Matthew Smith, Group CEO at EC Markets, speaking at FMLS:24
Matthew Smith, Group CEO at EC Markets, speaking at FMLS:24
Finance Magnates Annual Awards 2024 | FM Awards 2024 Highlights
Finance Magnates Annual Awards 2024 | FM Awards 2024 Highlights
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🎥Catch the best moments from the Finance Magnates Annual Awards Gala Dinner!
An evening where top names in finance came together to celebrate achievements, enjoy live music, and connect over a memorable dinner. Watch the highlights and feel the energy of our first gala in Cyprus!
Congratulations to all the winners for their dedication to excellence and leadership in the financial industry, including XM, Trading PRO, FP Markets, Deriv, FxPro, LATAM, Headway, ATFX, FBS, AMEGA, EC Markets, Axi
For more information about the 1st Finance Magnates Annual Awards, visit https://bit.ly/3Zb7wNz
#FinanceMagnatesGala #IndustryExcellence #GalaHighlights #FinanceMagnatesAnnualAwards #FinanceMagnatesAwards #CelebratingSuccess #FinanceCommunity
FMLS:24 | Shaping the Next Era of Financial Evolution
FMLS:24 | Shaping the Next Era of Financial Evolution
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Welcome to FMLS:24 – the premier event where influential brands and leaders in trading, payments, fintech, and digital assets come together!
Join over 2,500 industry professionals, engage with 150+ expert speakers, and discover endless opportunities with 70+ top exhibitors. FMLS:24 is where senior executives and decision-makers gather to close deals, forge new partnerships, and strengthen connections with long-term clients.
Whether you’re in finance, technology, or payments, this summit is your gateway to future growth, meaningful collaborations, and industry-leading insights.
👉 Don't miss out – secure your ticket now at https://events.financemagnates.com/ZQEYy0?utm_source=youtube&utm_campaign=fmls24-awareness&utm_medium=video&RefId=MLS%3A24+Video+Promo
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