The IRS is at it again, about a month after it sends some 10000 people warning letters for noncompliance, another round of letters has been sent recently, this time to notify those cheeky individuals who underreported their earnings in a bid to pay lower taxes.
While it is not entirely new that people often falsify their tax returns in a bid to pay lower taxes, cryptocurrency trading is often marred with an obscurity that often makes it challenging to file proper returns.
For instance, one trader flagged to have more than $4000 in unpaid taxes in the year 2017 alone, also owed close to $200 of delinquent taxes in interest income.
The series of letters sent late last month compounded all these facts, informing those flagged to promptly clear their names with the tax authority or face the consequences.
Sentiments From an Expert
A co-founder of a tax software has weighed in on the issue by giving his expert advice; Chandan Lodha has confirmed that the IRS did send a warning letter to a selected group of people whom it deemed to have evaded taxes by underreporting their earnings. Further, he said that these people are in trouble for failing to reveal their complete transaction details. Lastly, he went on to explain that, the IRS compared transaction details sent by some exchanges to those of individuals and picked out those records that showed inconsistencies.
The tax expert, also revealed that the cp2000 letter send entirely new in the crypto world, as in the past it worked to address grieve tax issues and cryptocurrency trading was not part of it, stressing on the seriousness of the matter.
However, the tax authority could have it wrong in that, transactions from the exchange to individual’s tax wallet are deemed nontaxable, by law, while the exchange could sometimes report it as otherwise and frame a trader for tax avoidance.
Guidance From IRS
The IRS, through its websites advice that everyone receiving the warning letter, should respond, stating severe consequences for those who do not. It further says that those disagreeing with the sentiments in the warning letter should, among other things, consult their financial institution and clear up the issue with the tax authority as soon as possible.
In one isolated case, a trader informed in their returns that in 2017, they receive an income of $0. However, the exchange to which the trader belonged, reported a staggering $12000 to the authority, which is subject to taxation, putting the trader in trouble with the tax regulator.
There seems to be a lack of harmony between the exchanges and their traders, resulting in a mismatch of information forwarded to the regulator.