IRS RAMPING UP CRYPTOCURRENCY TAXATION

IRS ramping up cryptocurrency taxation. This emphasis comes from the need for additional revenue, due to the large government expenditures related to the Covid pandemic, and as the IRS seeks to increase taxpayers reporting compliance and ramp up enforcement. The IRS recently released a version of updates on the subject, IRS form 14457, Voluntary Disclosure Practice Preclearance Request and Application., with a larger new section, also instructions for how a taxpayer can report virtual currency transactions. IRS ramping up cryptocurrency taxation.

Congress has placed crytpocurrency assets in the sights of broker reporting. The Infrastructure Investment and Jobs Act, P.L. 117-58, will require Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions, required to be filed and furnished after Dec. 31, 2023, to include certain cryptocurrency transactions, including those involving “digital assets” in which a person is responsible for regularly providing a service effectuating transfers of digital assets on behalf of another person. While guidance on the scope of the requirements is still awaited, a letter from a Treasury official to six U.S. Senators on Feb. 11 indicates that “ancillary parties” without access to relevant information about transactions but merely validating them, selling storage devices for private keys, or writing related software code will not likely be considered brokers for this purpose.

This is the second tax year in which the question has been on the front of Form 1040 and the other returns, for 2019, it was on Form 1040’s Schedule 1, Additional Income and Adjustments to Income, where it would have been answered only by taxpayers who were required to include the form in their return because either thy had income of the types entered there, such as business income or loss reported on Schedule C, Profit and Loss from Business. Those that have reportable income that they did not prepare by taking out estimated taxes, can consult with a Tax Resolution firm about the tax relief options in the IRS Revenue Code, including the IRS Fresh Start Program, including penalty abatements.