The tax man is turning his eye to tech, warning cryptocurrency traders that there’s a price due on their investments.
On Friday, the Internal Revenue Service announced that it would ramp up efforts to enforce federal tax regulation on cryptocurrencies. Over the next month, the agency is planning to send 10,000 letters of varying severity to those it suspects may not be compliant.
While concerning for some, it may not be much of a surprise.
“The first reaction that I had was that this is somewhat expected,” said Jimmy Song, a cryptocurrency trader. “It’s what centralized governments do.”
The IRS has generally regarded cryptocurrency as a form of property, meaning that owners are required to report and pay taxes on gains realized from selling.
The agency would not specify to Cheddar as to how it determined which cryptocurrency traders might have incorrectly reported their taxes. However, the IRS has in recent years stepped up its compliance investigations into cryptocurrency activity.
In 2017, the agency won a pivotal victory when a federal court mandated that Coinbase — one of the most popular exchanges for cryptocurrency trading — hand over data on more than 13,000 accounts.
“This is probably the result of that,” said Song. “Coinbase and all of these exchanges have databases of customer information with [Know-Your-Customer] laws that are now in place.”
Song cautioned that enforcement may encourage cryptocurrency traders to go abroad, where data might not be as accessible to the U.S. government.
“People will be going to other services. I don’t know whether they’ll be happy about it, but it’ll be harder to trace,” said Song. “It’s just a market reality that more people will see this as a burden and try to move offshore.”