A Glimpse At New Draft of IRS on Cryptocurrency Compliance, Exemptions and Other Enforcements

The US tax agency, IRS (Internal Revenue Services) enforces the tax legislations, primarily through the examination of tax returns that are identified as having the highest potential noncompliance. This identification is determined using risk-based scoring mechanisms, data driven algorithms, third party information, whistle-blowers and information provided by the taxpayer. 

IRS has now come up with the new draft of its Schedule 1 form, this has been a key component in promoting the highest degree of voluntary compliance on the part of taxpayers is enforcement of the tax law. 

During F.Y. 2019, those tax assesses who are involved in a transaction pertaining to the virtual currency are instructed to file Schedule 1. And, the highlights of draft of the IRS’s 1040 form predominantly questions the tax assesses whether there has been any receipts or any financial interest from crypto dealings or adjustments to such incomes during F.Y. 2019. There have been couple of questions pertaining to such data collection.

In conjunction with that kind of questionnaire, there have been the recent rounds of letters, indicates a growing interest in crypto compliance and enforcement.

Subsequently, those who report their crypto have to potentially undergo the stringent audits which seems most likely.  The audit inspects for any exchange of virtual currency for goods or services; or a sale of virtual currency; and/or an exchange of virtual currency for other property, including for another virtual currencies. 

Supposedly, if, during this period (2019), anyone has not engaged in any transaction involving virtual currency, then the filing of Schedule 1 is needless.

While IRS appears to be considering tax evasion meticulously that stems from the cryptocurrency use and taking necessary control points to address this. Of late, the tax authorities have been constantly shedding light on crypto-taxation norms.

The US IRS has released criminal investigation annual report 2019 that has established its milestone of 100 years of law enforcement. 

The chief counsel for the IRS, Mr. Michael Desmond, figured out that the crypto-avenue amounts about 8% of adults hold some form of crypto-assets, however, the out of approximately 150 million tax returns each year, the agency struggles even to collect the expected 12 million tax returns reporting virtual currency transactions, as per his speech at cryptocurrency and tax administration event. 

To levy taxes, auditors should begin to figure out trading records from cryptocurrency exchanges and to collate such data, one should have unified rule for data collection and validation.