Just because you've invested your fortune in bitcoin, don't expect to fly under the IRS radar. Alas, The Internal Revenue Service categorizes your cryptocurrency as capital assets. And it will be looking at your Form 1040, Schedule D, for realized gains from transactions in virtual currency.
Last year, IRS officers did come calling for Coinbase, a well-funded and increasingly well-known retail exchange for bitcoin and other virtual currencies. If you bought cryptocurrency on Coinbase from 2013 through 2015, the IRS was willing to make a federal case out of your transactions. Bitcoin's market value began skyrocketing then, and the IRS noticed that just 802 taxpayers reported bitcoin gains or losses in 2015.
Coinbase announced a partial victory when it managed to shield more than 480,000 customers’ records as the IRS reduced the scope of its search. But a Forbes headline called the case a "big win" for the IRS, as 14,355 high-spending customers remained under investigation. As Coinbase prevailed in its refusal to hand over customers' communications, or to divulge their passwords, a revenue officer may well be appearing at doors.
Remember: You must tell the IRS if you pay someone with your capital assets. If you pay anyone wages in bitcoin, report through Form W-2, which engages IRS tax payroll withholding. And if you pay a contractor for a service in bitcoin, issue a Form 1099.
When the IRS Comes Knocking. . .
IRS Revenue Officers are field agents (try a search: "find Revenue Officer near me"), adept at collecting taxes by their physical presence. If one of these officers is assigned to your case, expect the unexpected: a knock at your home or office. If you're not in when they come, you'll find a card tucked in the door with a request that you get in touch, and a deadline. Don't delay action. Revenue Officers can seize currency and can even go after a home or tangible property.
But know that a taxpayer has the right to not speak to a Revenue Officer, and is permitted to contact a local, licensed tax attorney.
To a Revenue Officer, each case is a task to resolve, so keep in mind that both parties typically want this ordeal over with. A tax attorney can review the issue in the context of your financial situation, and advise and assist in resolving your case—whether by compromise on your debt, through a good installment agreement or other possible resolutions. In some situations, it can be best to attempt to have unpaid taxes declared currently uncollectible. All of these options, of course, have their own set of opportunity costs. Professional advice can help the taxpayer avoid long-term mistakes.
If a Revenue Officer is at your door you have the right to deny speaking and contact an attorney immediately. Remember everything you say can and will be used to collect a tax debt. Protect your intent and show them that you mean business. Travis W. Watkins Tax Resolution and Accounting Firm deals with these situations daily. Let us negotiate with the IRS and stop the immediate threats to your livelihood, so you can get a good night’s sleep again. Call 1-800-721-7054 for your FREE consultation, so we can provide you with a customized, actionable plan to get your tax issue resolved!
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