IRS: Bitcoin and Cryptocurrency Investors Will Be Facing Scrutiny in 2021
The IRS began a heavy push to target Bitcoin and other cryptocurrency investors in 2019, and it has recently made clear that it will be continuing this push in 2021. After sending several rounds of “warning letters” to cryptocurrency investors over the past two years, the IRS will be shifting its focus to enforcement going forward.
Bitcoin and Other Cryptocurrency Trades Result in Taxable Income
The reasons for the IRS’ focus on cryptocurrency investors are twofold. First, and most fundamentally, Bitcoin and other cryptocurrency trades result in taxable income. Virtual currencies are treated as property for federal income tax purposes, and this means that selling Bitcoin or other cryptocurrency for a profit triggers federal income tax liability.
Second, the rate of tax evasion among Bitcoin and other cryptocurrency investors is high. Whether due to unawareness of the tax implications or reliance on cryptocurrency’s shield of anonymity, many cryptocurrency investors have not been paying federal income taxes on their cryptocurrency returns. However, with the Coinbase subpoena opening the door for the IRS to obtain investors’ identities from exchanges and other trading platforms, the IRS can now begin targeting individuals and companies suspected of failing to pay what they owe.
Cryptocurrency Investors Must Ensure Federal Tax Law Compliance in 2021
Even if a failure to pay federal income tax on cryptocurrency trades is inadvertent or the result of being unaware that reporting and payment obligations apply, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, knows this is not an excuse. Taxpayers must report their taxable income and pay what they owe. Full stop. Intentionally attempting to evade tax can lead to even more significant consequences (including the potential for criminal prosecution), but all cryptocurrency investors who have underreported their taxable income will be at risk of facing IRS penalties in 2021.
Given these risks, what should you do if you have underreported your income from Bitcoin or other cryptocurrency investment activities in prior years? At this point, you need to be extremely careful, and you should discuss your options with a Washington D.C. tax lawyer promptly. If you are not yet being audited, you still have time to correct your mistakes, but you will need to do so carefully to avoid triggering IRS scrutiny.
If the IRS launches an audit or criminal investigation focused on your cryptocurrency tax liability, you will need to engage experienced tax defense counsel immediately. These inquiries can lead to substantial penalties, and IRS Criminal Investigations (IRS CI) is pursuing criminal charges when warranted. If Bitcoin continues to skyrocket in value in 2021 (and if other cryptocurrencies follow suit), the IRS’ focus on investors will intensify even further, and investors who do not take steps to protect themselves will face substantial civil or criminal liability exposure.
Schedule an Appointment with Washington D.C. Tax Lawyer Kevin E. Thorn
Are you a cryptocurrency investor? Do you have questions or concerns about your federal income tax liability? If so, you should speak with a lawyer right away. To schedule an appointment with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033, email firstname.lastname@example.org or contact us online today.