IRS Cracking Down on Cryptocurrency Tax Evasion, Seeks Private Crypto Tax Contractors
The Internal Revenue Service (IRS) has requested help from independent consultants to crack down on non-compliance in cryptocurrency tax.
Updated on 21/07/2020 11:00 AM HKT
The Internal Revenue Service (IRS) has requested help from independent consultants to crack down on non-compliance in cryptocurrency tax.
On May 12, the IRS sent out a Statement of Work (SOW) soliciting private contractors to aid in auditing tax returns related to cryptocurrency and virtual assets.
An email first reported by CryptoTrader.Tax read, “The Internal Revenue Service is engaging outside contractors to assist our Revenue Agents in calculating taxpayers’ gains or losses as a result of their transactions involving virtual currency. We are placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract. Attached is a sample Statement of Work describing the types of services we are looking for. I wanted to make you aware of our efforts in case your company has any interest in pursuing this type of work.”
Statement of Work Requirements
Per the SOW, the IRS is requesting help, from FinTech companies that develop or are proficient in cryptocurrency tax software, to aid in the reconciliation of reported crypto gains and losses on the tax returns of US citizens.
The process described in the SOW aims at using software to systematically obtain records of cryptocurrency transactions data from exchanges, wallets, data sites, and other data sources to create a more detailed and transparent tax report for the taxpayers under consideration.
Source: IRS SOW
It appears the service sought by the IRS is an efficient tool to compare information reported on tax returns with the information provided by exchanges and digital asset service providers to discern if any further audit should be carried out.
IRS More Knowledgable than Ever on Crypto
In Notice 2014-21, the IRS explained that they have applied general principles of tax law to determine that cryptocurrencies or virtual currency are classified as property for federal tax purposes.
In October 2019, the IRS announced the addition of a question to the US tax return form obligating citizens to disclose their cryptocurrency holdings as well as gains and losses.
The recent SOW sent out by the IRS highlights that the federal agency has become far more knowledgeable in the cryptocurrency space. In a section of the SOW entitled, “Services to be Provided”, they detailed how complex an individual tax return calculation can become when dealing with cryptocurrency as any one user could have “hundreds and thousands” of transactions in a single year on multiple platforms.
The request for aid is so far just a request and no crypto tax service providers have been legally forced to hand their users’ data over to the IRS. The SOW does state, however, that the contractors who do decide to take on the project will be required to testify at trial to explain any discrepancies in data for the IRS.
"While more updates like this are expected in the coming years, services like Taxbit remain on top of government regulations of crypto and aim to make doing your taxes as easy as possible."
Image via Shutterstock
Image source: Shutterstock
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