The IRS, or Internal Revenue Service, has called for a summit to be held early next month to address the responsibilities that cryptos holders have from the standpoint of taxation. The US government agency has called on both crypto companies, and crypto advocates to attend the event.
Cryptos are mostly anonymous, and the IRS has few resources to enforce tax requirements if US taxpayers use an exchange that doesn’t report its activities to the IRS.
While many major US exchanges, like Coinbase, have turned over their records to the federal agency, there are numerous offshore exchanges that do not have this responsibility.
With so many offshore crypto trading options, the IRS looking to drive home the responsibilities that US taxpayers have for their crypto holdings so that the agency is able to better collect the money that it believes that it is entitled to.
Cryptos are a Tricky Market for Tax Authorities
According to the IRS, the upcoming Crypto Tax Summit will feature a few 90-minute sessions, although they may not be made available to the public. Regardless of how open the IRS chooses to be about its crypto policies, there are bigger problems at hand for tax authorities when it comes to cryptos.
It is no secret that many people in the crypto community adopted the new technology because it gives them anonymity, and also reduces their reliance on government-blessed fiat currency.
It is highly unlikely that a person who values their personal freedom and specifically uses a means of savings and payment that avoids governments will care about what is coming out of the IRS.
A Global Issue
Another thing that makes the crypto markets very difficult for national tax authorities is the global nature of cryptos. A US resident doesn’t have to use US crypto exchanges. In fact, there are a number of crypto brokers who offer advanced trading services to crypto-only clients who require little more than an email address to begin trading.
While the IRS would be able to track a fiat transaction and find where the money had been sent, this is also very difficult in the world of cryptos.
Again, a US taxpayer can store their cryptos on cold storage devices, and also use ‘mixers’ to obscure the transactional trail for their wallet’s holdings, all of which makes tax enforcement nearly impossible.
The IRS is Stepping it Up
Taxation is a business, and the harder it is to collect on taxes, the less likely tax authorities are to enforce regulation, even if they do exist. The General Accounting Office (GAO) of the US has already cited the IRS’s tax regulations for cryptos as being difficult to understand, although the IRS disagreed with the GAO.
For the IRS, all of this is just business as usual. The US tax agency has a spotted past, and may not even be legal to begin with. While recent case law has supported the IRS’s authority, the constitutional law that created the agency is questionable – at best.
Cryptos aren’t the only area that is going to see increased enforcement activity in the coming years. The IRS recently announced that it will be sending agents to the homes of high-net-worth individuals that don’t file tax returns.
According to Hank Kea, who is a director of field collection operations at the IRS:
“These visits shouldn’t come as a surprise to the taxpayer because the IRS has contacted these individuals multiple times regarding their tax issues prior to their cases being assigned to an IRS revenue officer.”
What might come as a bigger surprise is that the IRS has more than 2,000 Series 1811 Special Agents in its IRS-CI division, all of whom are authorized to carry automatic pistols, shotguns, as well as assault rifles. The ‘CI” in IRS-CI stands for Criminal Investigation, and anyone who doesn’t file their paperwork the right way could easily be considered a criminal by the IRS.
Be sure to follow the IRS guidelines and use some form of cryptocurrency tracking software if you are a US taxpayer to maintain records, as failure to comply could result in a home visit from the IRS-CI, and agents at your front door.