Cryptocurrency traders in the United States of America (USA) are under the Federal agency Internal Revenue Services’ (IRS) gun lately.
IRS has been issuing warning letters and action letters to suspected digital currency holders and traders. These traders and holders of cryptocurrency might have probably misreported their digital assets on the tax returns.
Throughout the country, letters such as the 6173, 6174-A and the CP2000 have been received by many of these cryptocurrency traders. Moreover, the software companies that deal with crypto tax have been dealing with an increasing number of frantic customers who are seeking help to avoid penalties.
Why the IRS is coming hard on cryptocurrency traders?
This whole episode of chaos is owed to the reports that IRS does not have adequate information, not only that but the information it does have is misleading.
The Federal agency is getting all such information from an exchange Coinbase and relying on this information the agency is coming after a huge number of crypto traders, up till now ten thousand (10,000) warning letters and action letters have been issued.
In several countries, including the USA, cryptocurrencies are recognized as property rather than currency. So, like other property such as real estate, bonds and stocks, as one incur the capital losses and capital gains one has to report one’s tax returns upon buying, selling, trading and even disposing of one’s cryptocurrency.
All this is quite understandable, but as the crypto enthusiasts haven’t been paying their taxes on the cryptocurrency activity, the agency’s move is justified. However, the information is utilized by the IRS is misleading and is thus leading to various problems.
It is worth noting that crypto exchanges are not able to provide tax reports like the stock brokerage. Owing to this very fact that the digital and cryptocurrency users are transferring cryptocurrencies in and out of their exchanges.
Hence the exchange cannot possibly know-how, from where, when or the cost the cryptocurrency has been acquired. The only thing they can see is that they are appearing on one’s wallet on their platform.
Lastly, the information received by IRS from these crypto exchanges does not reflect the right state of the capital losses and gains, and this is causing so many problems for millions of users as this is what decides the amount to be paid for taxes and not on the gross transaction amounts. So, it is advised to consult a tax professional for further clarification and help.