On March 24, 2021 we posted Some Cryptocurrency Investors Are Receiving A New Round of Letters From The Internal Revenue Service, where we discussed that the letters are a fresh signal that the IRS is increasing its focus on cryptocurrency tax compliance, after first being slow to stay abreast of the growing industry and on April 5, 2021 we posted In a 2nd Crypto Summons the Judge Orders US To Justify Broad Doc Request, where we discussed that the IRS found 5 US taxpayers used this cryptocurrency for their noncompliance, combined with a dearth of third-party reporting in cryptocurrency generally, has led the IRS to believe that there are more Kraken users who aren't compliant with their cryptocurrency tax reporting obligations, the government said.
Now the IRS recently selected TaxBit, subcontracting under DPI Inc., to provide data analysis and tax calculation support for taxpayers with cryptocurrency. TaxBit provides tax automation software to enterprises, consumers, and government entities.
"This is a milestone moment for the cryptocurrency industry. It indicates regulators are embracing the asset class, but doing so in a way that ensures a straightforward approach to conform with existing regulations. We believe this is an important step for the enablement of widespread cryptocurrency adoption." Austin Woodward, Co-Founder and CEO of TaxBit.
TaxBit’s Tax Automation Software Is Already Being Used By Companies, Consumers And Other Government Agencies, But The Deal With The IRS Represents A Major Step In Demonstrating How Seriously The IRS Is Taking Tax Compliance For Users Of Digital And Virtual Currencies Like Bitcoin, Ether And Dogecoin.
And Its Reports Will Be Shared Not Only With The IRS,
But With The Taxpayers Themselves, As Well As The CPAs
And Attorneys Who Represent Them During Audits.
The IRS has been cracking down on cryptocurrency users who fail to report their gains, adding a question to the top of the 1040 form in recent years asking if any time during the previous year, they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.
The agency won a high-profile court case in 2018 against the popular crypto exchange Coinbase to get access to their customer information through John Doe summonses. Last week a federal court in California authorized the IRS to serve a John Doe summons on another popular cryptocurrency exchange, Kraken, and its owner Payward Ventures. TaxBit could be finding itself poring over the information made available through these efforts. However, much of it will come from the standard processes used by the IRS for selecting returns that set off red flags for further examinations and audits.
TaxBit will be helping the IRS scrutinize returns going back several years. “It really is case by case,” said Wilks. “These really can range from 2016 or 2017 and forward. Typically, if you think about an IRS audit cycle, they don’t start auditing taxpayers until usually a couple of years after they’ve filed, so these are not necessarily audits that are coming from 2020 or 2019 activity. These are really from the last few years.”
The Software Should Help Automate The Process
For IRS Auditors of Determining How Much Money
Was Made From Crypto Transactions.
It Will Generate A Report That Will Go To The IRS,
and In Turn To Taxpayers.
“They’re just looking to get an accurate view of the gains and losses,” Wilks explained. “If you imagine a CPA trying to get through a million lines of data and calculating gains and losses using a FIFO methodology or something, that would take an unrealistic amount of time, so the idea is that we have technology that can do that in a matter of minutes.
But beyond that we have CPAs and attorneys who work here and who can then look at that information and we can get further insights into what may be missing. This report is provided to the IRS, but it’s also reported to the taxpayer, so it’s a resource on both sides to help them make sure that they’re getting a complete picture.”
May Start Seeing The Reports As Soon As Next Year.
TaxBit expects to start receiving the initial data and to begin sending the reports by early next year. “We’re Actually Expecting Them Any Day Now At This Point, So It Will Be Within The Next 12 Months,” Said Wilks.
Read more at: Tax Times blog