Understanding the IRS Letter Campaign
The IRS has embarked on a letter-sending spree targeting crypto investors, with the goal of clarifying tax filing requirements and compelling some to pay back taxes. Announced in a press release on July 26, this campaign aims to nudge around 10,000 individuals into compliance.
Types of Letters
Three different letters—Letter 6173, Letter 6174, and Letter 6174-A—are being dispatched. These letters serve a dual purpose: they guide taxpayers on their obligations while also offering a path for correcting any past filing mistakes. IRS Commissioner Chuck Rettig emphasized:
“The IRS is expanding our efforts involving virtual currency, including increased use of data analytics…”
Skepticism Surrounding the Campaign
Not everyone is on board with the IRS’s approach. Some crypto tax professionals, like Tyson Cross, have voiced concerns that the IRS is conducting a widespread fishing expedition. He points out that many of his clients, who filed their taxes correctly, received these letters anyway. Could this be a desperate attempt to crack down on perceived tax evaders?
What Should You Do If You Get a Letter?
Tyson Cross advises recipients of these letters not to panic. Instead, he suggests carefully reviewing their tax returns to confirm their accuracy. Receiving a letter from the IRS might feel like a bright spotlight shining down from above, hinting the agency is keeping an eye on you.
The Reality of Crypto Tax Filings
As alarming as the IRS campaign might be, it embodies growing concerns over crypto tax compliance. Data suggests a staggering 0.04% of tax filers were reporting capital gains from crypto investments prior to the latest tax year. For the IRS, that’s a Houdini act—disappearing profits and vanished paperwork.
History of IRS Actions on Crypto
Back in 2017, the IRS attempted to obtain user data from Coinbase, seeking to foster compliance by targeting those who merely dabble in cryptocurrency. Initially aiming for detailed information on 500,000 users, a court later trimmed that number to just 14,000 high-transaction individuals. It seems the IRS was gearing up to dance with those who could tango with tax evasion!
Future Plans: The IRS’s Game Plan
Recent reports suggest the IRS isn’t hitting the brakes anytime soon. Allegedly, they plan to use Grand Jury subpoenas to scrutinize firms like Apple and Google, evaluating taxpayers’ download history for crypto-related apps. This form of digital sleuthing sounds like the IRS is morphing into a virtual watchdog evenly distributing its gaze over the vast crypto sea.
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