> One version of the letter recently uploaded to the IRS website asks recipients who believe they have followed the law to sign a statement
Does anyone have a link to the letters? It drives me mad that journalists refuse to link to primary sources.
Does anyone have a link to the letters? It drives me mad that journalists refuse to link to primary sources.
https://www.irs.gov/newsroom/irs-has-begun-sending-letters-t...
https://www.reddit.com/r/Bitcoin/comments/chupoe/irs_we_have...
https://www.irsmind.com/audits/irs-begins-targeting-taxpayer...
> Letter 6174– this is a soft notice informing the taxpayer that there is a likelihood that they did not report their virtual currency transactions. The notice asks them to check their return and, if necessary, file an amended return to correct the misreporting. The taxpayer is not required to respond to the notice and the IRS intends not to follow up on these notices. In short, this is information only to the taxpayer and education on how they comply.
> Letter 6174-A– this is a “not so soft notice” from the IRS. As in Letter 6174, this letter tells the taxpayer that there is potential misreporting of virtual currency transactions. However, this notices states that the IRS may follow-up with future enforcement action. Again, no response is required if the taxpayer believes that they are in compliance. Taxpayers who receive this notice should be aware that they have been put on “notice” that they have been identified as a noncompliant taxpayer for potential future enforcement.
> The last notice requires a response – Letter 6173. This notice requests a response from the taxpayer about the alleged noncompliance. The letter provides instructions on responding to the IRS. The IRS intends to follow up on these responses to determine if the taxpayer is in compliance.
Can you be forced to sign anything like this? I would never sign such a document out of my free will (what's the upside?). Tax law is so complicated that I wouldn't be surprised if nearly everyone is not super 100% in compliance. I mean completely independently of this particular Bitcoin issue.
> Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year.
Though of course you are right that anyone should consult a professional in such a case.
Letter 6174-A: http://src.bna.com/KeH
Letter 6173: http://src.bna.com/KeI
Letter 6174: http://src.bna.com/KeJ
If you invested $10k in crypto mining equipment, you can deduct that investment (over 5 years or something similar), you then successfully mine 5 coins. These coins are/were worth whatever exchange rate you could get. Until you use/exchange them, you aren't taxed. If you buy something, you need to declare the value of what you bought and pay income taxes against it. If you exchange it for currency, you need to pay taxes on that currency.
If you bought $25k worth of BTC, and it fell from $25k to $6k, then you turn it back into USD, you can take a deduction on the losses too. This is how most interactions with futures/stocks works. However the tax rates, triggers and rules are more tightly regulated than straight/regular income. If you're operating under a corporation or llc, again the rules may be different still.
Having a tax lawyer and accountant is probaly prudent if you're talking about 5+ figure transactions over a given tax year.
edit: --- based on responses below, I'm probably wrong about mined coins, and you probably have to pay taxes on the value when mined. Again, I'm not a lawyer/accountant, so if you're in a position where you're talking about a significant amount of money, get professional advice.
If you mine any coins, that is income you have to pay taxes on. Just like when my RSU stocks vest, I pay (regular income) taxes on the vested amount. It's treated as if my company gave me the money to buy these stocks I now have. Later when I sell them, I'll pay capital gains tax on the gain/loss.
Now if I buy coins, then I will only be taxed on them when I sell them.
This is also not correct. Crypto-tokens that are not securities are considered property. As such, they are not subject to wash-sale rules, while stocks are. (Not legal advice.)
Before anyone gets excited, despite being considered property, crypto-tokens are explicitly not eligible for 1031 like-kind exchanges after the latest tax bill (although it's debatable that they were allowed prior.)
As far as I know, you can still take a loss, then re-purchase at FMV, and claim the loss, even though you end up with the same assets in your portfolio.
You are flat out wrong. You are taxed on any income or transaction, no matter the currency used.
When you trade it, that's when you get taxed.
I think the key might be that the IRS is viewing bitcoin as a payment for the service of mining.
As you're not a tax expert and neither am I, take my objection to this with a grain of salt, I think this is wrong though. When you have income from mining, that's income that should be reported at the market value of the coins at the time that they were income (when you received them.) AIUI they are taxed as income, and you should pay taxes for that income based on your regular (marginal) income tax rate. Once you've paid that income tax, you've established what's called a cost basis for capital gains. (This is also what you have when you have bought a coin rather than mining it. This is considered a "taxable event," even if the money you received in the exchange is never withdrawn from the exchange.)
If you buy something using your crypto asset as payment, or if you exchange them for currency, then you might also owe capital gains tax based on the difference between the cost basis, and the price/value you received for your sale. (If the price went down after your cost basis, then instead you have a loss, and so you don't owe capital gains.)
If you bought something, and the price went up between when you mined and when you made the purchase, then in addition to the income tax, and the capital gains, you will _also_ owe sales tax on the purchase, unless the seller collected the sales tax. (Although unless you are running a scheme to systematically undermine sales tax, and they have you with assets which can't be explained any other way I am not sure how they can ever prove that you owe that sales tax.)
When you are paying capital gains, the usual capital gains rules apply. If you have held the asset for longer than a year, you pay the long-term capital gains tax rate which is lower. The rules are (and this is the point where I'm talking way above my pay grade, but I think I've done my homework) first-in first-out, no like-for-like exchanges, which means if you sell some BTC and receive some ETH as payment, those are two taxable events. (The BTC sale is taxed at the capital gains rate for the USD value of BTC, and the ETH asset establishes a new cost basis at the USD price for ETH.)
If you have held the asset for less than a year before it is sold, then you pay the short-term capital gains rate. If you are not paying capital gains, and your aggregate transaction volume for the year on any given (compliant) exchange is above 10 or 20 thousand dollars, then you are very likely to be on their radar.
If you have losses over the whole year, and no corresponding gains to cancel them out fully, then you can take the excess loss against your income for a deduction in income taxes (subtract the taxable value lost from your income).
Please don't take my word for it though, I have someone that does my taxes for $200 or $300 and I use http://bitcoin.tax to extract the data from the exchange and provide them with the data in a form that they won't balk at. But you can take this as some free tax advice from someone who filed and paid their crypto taxes last year (and obv. also took the loss this year!)
Just a word of advice to anyone who may be receiving letters like this in the future. Do not, under any circumstances, sign a statement that you have followed the law without consulting with qualified counsel first. You should know that every time you sign off on something to the federal government, if it turns out not to be true, they got you on a count of Lying to the Federal Government. (Yes, each signature is a separate count. At least that's the way our lawyers explained it to us when advising us on FDA approval for our product.) So you can easily rack up years behind bars in this situation right? There's the original forms in you return. How many times did you sign papers there? Then there's this statement that they want you to sign. That's another potential count.
What's worse, you may have made an honest mistake, and you really do believe that you are in compliance. So you go ahead and sign such a statement. Only you weren't in compliance. Now what? I hate to say this, but just don't. Don't sign it. Get everything looked over by the experts first. Maybe they can even negotiate with the IRS on your behalf if you have made a mistake.
But you don't want to be in the position of having signed something like that with honest mistakes potentially out there in your documentation.
The IRS on the other hand with these kinds of notices is not out to get you, and I don't believe I've ever heard of someone being charged with perjury for signing an IRS document that wasn't true (and they genuinely thought it was true), especially from the perspective of a small time residential investor who is making an effort to be compliant with tax law.
I think a more sane proposition is this, if you only have a few thousand USD in crypto, you probably don't need to hire a tax lawyer or tax accountant (or both) to review your documents and compliance.
But if you're at 5 figures or above (10k USD+) then spending hundreds of dollars, up to a thousand or more, just to retain a lawyer and/or accountant could be a smart move for you to ensure that everything has been handled appropriately.
And it's not "hire a lawyer to review this one document", it's hire a lawyer and/or accountant to review your compliance with all tax laws and investment laws federal and local, and it's something you should do regardless of receiving a letter like this. If you have a lot of money in crypto and have never spoken with a lawyer or accountant about it, you should probably consider doing that sooner rather than later.
Even if you do "lie" to the IRS, and they think you have, they aren't going to have you charged for lying and put you in jail, they're just going audit you or determine you owe them money without you admitting it, then send you a bill and enforce that bill over time through wage garnishment, account levy, tax lien, etc. They would much rather tell you that you have debt and garnish your wages than lock you up.
Generally they save the courts for extremely egregious and offensive cases of intentional tax evasion (like people who use the 861 argument)
Citation needed. The IRS can be among the most vicious of any federal agency. Having dealt with FATCA situations with overseas Americans, Treasury is, in my experience, nobody’s friend.
The IRS will generally take the most effective tack it can in getting the money it is owed. For honest mistakes, that usually means sending you a formal notice that it believes you are out of compliance and requesting that you pay them. If you pay them, all is forgiven. If you can show to their satisfaction, with supporting documentation, that you don't actually owe the money, all is forgiven. (I once got a notice that I owed $11K because of some stock sales I'd forgotten to report and education credits they didn't believe I was entitled to; after producing documentation on the cost basis of these sales, a course transcript from the educational institution, and an amended tax return, the total was reduced to $50, I enclosed a check for that, and I got a notice back that the matter was closed.) If you try to pull any funny business or argue with them and your arguments are not backed up in fact, they will viciously hound you until you pay the money that you owe.
If you pay them, they go away. Or sometimes they pay you and go away. (My first IRS letter was after my first semester of college, which was a bit disturbing since my whole income that previous year was ~$1k, but opening it revealed that I had neglected some sort of new education credit and they were giving me a small check to account for it.) My only remaining "fear" of the IRS is the scary Audit, because I know my record keeping is terrible and I don't want the anxiety of calling places and hunting down receipts or getting sworn letters from people that such-and-such checks were used for rent sharing not income/paying for services, and so I only hope that any audit could just be resolved by paying a lump sum even if with a bunch of effort that could get reduced...
I don't believe I've ever heard of someone being charged with perjury for signing an IRS document that wasn't true
You could look for some perjury charges if you disbelieve.
I have a friend who took this advice way too literally when we were 18.
I was in the car when he got pulled over for speeding once, and he refused to say a single word to the officer. He handed over his license, registration and proof of insurance, but wouldn't answer any questions.
The cop asked how him how fast he thought he was going, and my friend didn't even tell the cop that he wouldn't answer his questions. It was just the straight silent treatment. The cop was clearly getting agitated. I was begging my friend just to answer the questions, even if just say he didn't remember or something, but he refused.
Fortunately, his grandma is in the backseat and really saved the day by apologizing for her idiot grandson. My friend wound up only getting a warning thanks to his grandma, but no doubt we would have gotten a big ticket at the minimum if he kept the silent treatment up.
Another time, we both got busted for launching bottle rockets in a public park a couple weeks after the 4th of July. There were several witnesses including the people that called the cops, but once again my friend did the exact same silent treatment to the cops. I sang like a bird about my own actions while being careful not to say that my friend had also launched rockets.
Fortunately the questions were directed at both of us, and we weren't asked specifically who all was involved before my friend felt guilty that I was taking all the blame and started talking to the cops himself.
Good thing because in Ohio launching bottle rockets is an M-1 misdemeanor carrying up to a six month prison sentence. The cops could have been jerks, but instead they recommended that the prosecutor drop charges after we did some community service. Had my friend stuck with the silent treatment, I fully believe we would have been punished more severely.
Again I urge common sense. Every situation is different. Had it been someone else or somewhere else or a slightly different situation, being quiet could have been the right decision. This could be an example of white privilege, but so far in my life, I've never regretted just being honest with the cops.
> [..] I urge common sense [..]
That's the problem with your post.
You fully believe [..] and you urge common sensen.
You fully believe, but you don't know for sure what would've happened in your alternative reality. We miss a lot of details as well. For example, are you POC? What about your friend? White privilege is still real in 2019 (and I say that as someone who's whiter than white). I fully believe I got away with things in my youth someone who's POC would not have gone away with. Not just cops specific, but also community specific, neighbor specific, etc.
The point being, what might be common sense to you or me might not be common sense to any random person.
Here's a famous video [1] of a lawyer and former cop who suggest you never talk to the police. ACLU also has videos online with examples of how you may incriminate yourself even whilst you're fully innocent.
I wonder if we're thinking of the same kind of bottle rocket... like a plastic soda bottle propelled into the air by water and/or compressed air? Why is the penalty so severe?
Anecdote time. Having been stopped by police in the States four times (that I can recall offhand) over the years -- with a legitimate justification in each case -- my experience has been that courtesy and cooperation have served me well. On a couple of occasions when I could quite reasonably have been ticketed and fined, I have instead been sent on my way with a friendly warning to be more careful. I strongly suspect taking a strict "don't talk to the police" line would have cost me quite a bit more stress, time, and money.
When "never talk to police" comes into play is when they are doing a criminal investigation. And even then, when to pull out the fifth amendment card depends on individual circumstances. It can definitely escalate an otherwise innocuous situation if you overuse it.
Also, try to remember that what makes the news is newsworthy for a reason.
Alternatively, we see politicians walking back false statements or changing stance daily because the thing they said previously was what they believed based on the facts present at the time -- and they are never held to account.
At the end of the day, the IRS just wants their money.
On the other hand, IANAL, but a tax lawyer once said to me the only thing you go to jail for is hiding money. You can claim weird deductions, invent new depreciation schemes, misapply rules and all the IRS will do is say "No" and stick you with a bill. But if you're hiding income, it really upsets them.
It's incredibly easy to do what you think is the right thing but still "lie" because you didn't know/understand all the facts, implications, and details.
Always, always, always, get qualified legal/accounting counsel involved.
No, your uncle the family law attorney is not qualified.
It's also quite entertaining.
Until you've sat across from a pair of investigators, it's hard to guess how you'll respond to relatively simple questions.
I've run mock interview sessions for these and it's incredibly easy to trip someone up once you get them angry or get them agree to something you've purposely misstated.
And that's assuming everyone is doing their best to give a complete and accurate statement+summary minimizing their own biases.
When it comes down to "knowingly and willfully" it is often a judgement call.
This is well-established legal understanding. Please read up on 302s:
https://steemit.com/informationwar/@stevescoins/what-is-an-f...
From an expected value perspective the result has a negative sign but a small magnitude, so you avoid it whenever you can but not if doing so comes at a significant cost. But low probability events with large negative consequences are the category of thing that worries people a lot; other instances in this category are things like plane crashes, child abductions, forcible rape and terrorism. It's not strictly rational to be as afraid of them as many people are.
However, in this case there's also the consideration that the probability of the law being selectively enforced against you has a lot to do with whether the government doesn't like you, so if you're the sort of person the government (or some plausible future government) might try to stick something to, then the "low probability of enforcement" side of the equation changes and you're in entirely different territory.
And we also generally, as a pro-social activity in solidarity with those populations, might want to err on the side of encouraging everyone to behave in a way similar to what those vulnerable populations would have to, to normalize it and make that sort of selective prosecution more difficult. At least as long as we continue to have these disproportionate penalties for what are in practice honest mistakes and everyday behavior.
Here's a guide:
https://www.moving.com/tips/change-address-checklist-who-to-...