On the 26th of September 2020, r/Bitcoin confirmed in its Reddit account that IRS sets to trap cryptocurrency tax evaders. The IRS plans to modify the standard 1040 form to guarantee that cryptocurrency traders pay their taxes. The US tax agency will alter the form 1040 by putting a question regarding cryptocurrency on its front page. The question will read; at any time in 2020, did you sell, receive, send, exchange, or acquire any financial interest in digital currency? Any taxpayer filing the form will have to answer the question in the form 1040 correctly.
The IRS is making it harder for cryptocurrency taxpayers to claim ignorance of its rules. The tax agency is doing so by putting the crypto question on the first page to ensure the concerned people respond. Cryptocurrency tax cheats will face penalties since the IRS is taking this as a threat to the tax system.
Crypto Enthusiasts On Cryptocurrency Tax Rules
In 2019, the IRS sent around 10,000 letters to people it suspected they refused to pay crypto-related taxes. Despite that, an independent agency with two crypto advocates challenged the letters, claiming that the US tax agency violated taxpayers’ rights.
On the other hand, Justin Winston, a crypto enthusiast, opposed the crypto question on the recent IRS 1040 form. Winston stated that the authorities should not know an individual’s cryptocurrency information, since crypto is not just money. Clinton Donnelly also supported Winston, saying that the new IRS crypto question goes beyond its mandate and disregards the taxpayers’ constitutional rights.
Could the IRS’s Recent Actions on Cryptocurrency Slow Down Crypto Adoption?
IRS’s recent actions prove that it is becoming serious on cryptocurrency tax compliance. One recent blow to crypto-traders is the IRS’s confirmation that cryptocurrencies earned from microtasks through crowdsourcing are taxable. Some crypto enthusiasts feel like the US tax agency is threatening to hinder cryptocurrency adoption with its recent actions.
A recent report confirmed that the US tax authority went to as far as intruding the Monero Coin’s privacy and tracking down the transactions on the Lightning Network. Chandan Lodha, the Cointracker co-founder, believes that the IRS gets the list of crypto users from Coinbase Subpoena data. Lodha’s conclusion is from the fact that most cryptocurrency traders who received tax compliance are regular users of Cointracker.
Lodha also suspects that the IRS subpoenaed Bitstamp and uses blockchain analytics software to trace crypto traders’ transaction history. According to Lodha, people might view all these scrutiny and compliance threats by the IRS as an intrusion of crypto users’ privacy, hence scaring away investors from trading in cryptocurrency.