As if the SEC was not enough to deal with, the crypto world has another alphabet government agency to deal with.
The Internal Revenue Service (IRS) wants its money. Thus far, it has been rather lax about cryptocurrency enforcement. That is likely to change going into 2021.
In the past, the focus has been upon education. Over that time, the agency took a number of steps towards helping taxpayers get in compliance. They sent out letters warning people that cryptocurrency transactions are taxable and that individuals were responsible to ensure they paid the proper amount owed.
This approach does not appear to have led to crackdown by the agency. It seems they were concerned with education as opposed to enforcement. This is changing with a box placed overtly on the 1040 return questioning whether one has cryptocurrency.
Could it see that some high profile cases start to roll out in 2021?
The agency has a history of pushing compliance by going after high profile targets. Names like Wesley Snipes and Willie Nelson are a couple of examples of what can happen when one runs afoul of the IRS. The fact that the agency went after these individuals hard shows they could go after anyone. It obviously pushes others to remain compliance.
It will be an interesting meeting with many old time crypto people and the United States tax enforcement institution. Many in crypto, especially early adopters, are of the libertarian, screw you government mindset. Cryptocurrency is believed to be something that is outside the control of any single government. After all, Bitcoin was born out of the notion of creating a currency that is not under the power of any government.
That does not mean, however, that taxes are not due upon the profits. Ultimately, the IRS could care less how one makes the money, so long as the taxes are paid. They are not worried about the other laws that could apply. Basically, they just want to be paid.
Other countries are doing the same thing. With governments running up enormous deficits, the hunt for taxes is on. Part of the reasons that they want CBDCs so badly is to be able to levy taxes in real time. Imagine having money sent to you as payment and before it hits your account, the taxes are removed? Do not think this is outside the realm of what they are thinking.
For now, the IRS is stuck going after things the old fashion way. When filing, each person will have to attest whether they own cryptocurrency or not. It is likely the agency already has the records from many of the exchanges, so a denial could be a red flag. It is presumed that anyone who checks yes will have to attach what their "trades" looked like and the profit or loss from said activities.
Remember, every transaction in crypto, according to the IRS is a taxable event. So if you buy Bitcoin then immediately sell it, you will have to state whether there was a profit or loss, no matter what size it is.
It seems the days of the IRS looking the other way (or more accurately not looking at all) are over. 2021 could see the agency move towards stronger enforcement against crypto users.
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