Categories: CryptocurrencyFinance

IRS seeks contractors to audit cryptocurrency tax returns

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The Internal Revenue Service (IRS) of the United States is seeking contractors to help audit cryptocurrency-related tax returns.

The federal tax agency sent out an email detailing the requirements and responsibilities of those seeking to fulfill the job positions. CryptoTrader.Tax, a cryptocurrency tax software company, posted the email.

The company, however, noted that they have no plans on pursuing the contract.

IRS looking for outside help

In the email, the tax agency said it was “placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract.” The overall goal of the contractor is to calculate the gains or losses pertaining to the taxpayer’s cryptocurrency transactions.

The IRS views Bitcoin and other cryptocurrencies as property. This means they are taxable in regard to any profit realized when they are sold. If a person bought Bitcoin for US$7,000[AU$10,911] and then converted it into fiat when it was worth $8,5000, that person would then owe taxes on the $1,500 profit.

The IRS notes the unique requirements of auditing tax returns in regard to cryptocurrencies. The statement of work sent out by the agency states, “These [cryptocurrency] transactions need to be aggregated, and the assets involved need to be valued, as part of the process of computing gains and losses.”

The tax agency adds, “Additionally, specialized technology and infrastructure is required to digest, contain, and analyze virtual currency data due to unique requirements such as but not limited to decimal place precision, varying field formats, and file formats.”

An interesting component of the statement of work is that the IRS notes the contractor may need to testify at a trial to explain their calculations. The good news is that the agency will pay for any such travel if needed.

Getting serious about crypto

The IRS began seriously looking at cryptocurrency back in 2016. It asked Coinbase to hand over customer data on all the people who bought Bitcoin between 2013 and 2015.

The cryptocurrency exchange resisted the request, but the courts eventually ruled that the exchange had to comply.

There was a major caveat to that court order, however, that Coinbase only had to hand over account info for customers who had over $20,000 in transactions within a single year. In February 2018, Coinbase announced it was handing over information on 13,000 user accounts to the IRS.

Last year, the IRS sent out letters to more than 10,000 taxpayers who possessed cryptocurrency or were suspected of holding cryptocurrency. The letters came in three forms.

The first was a “soft notice” that said the IRS believes the taxpayer might not have reported their crypto transactions but that the tax agency was not likely to follow up on the matter.

The second letter type was a “not-so soft notice” that said the taxpayer’s return may contain “potentially misreporting” of crypto transactions and that the IRS may follow up with “future enforcement action.”

The third letter type was a “hard notice” which expressed that the taxpayer was not in compliance with lawfully reporting their crypto transactions and that a response was needed—the other two-letter types did not require a response.

The good news for taxpayers with cryptocurrency tax obligations is that the deadline for filing taxes is extended to July 15 due to the ongoing COVID-19 pandemic.

Images courtesy of RomanR, Dan Eady/Shutterstock

Jeff Francis

Jeff has taken a roundabout way to becoming a cryptocurrency writer. He has always had a huge interest in history, which led to him receiving a degree in medieval history. He once thought of becoming a teacher but eventually joined some friends in opening a hobby shop. Jeff eventually took over sole proprietorship of the business and ran it for over 10 years. He then moved on to online selling and then into gaming journalism. He has spent the last 10 years writing professionally for various websites as well as creating content for many businesses. A few years back, he began hearing about Bitcoin and the rise of other cryptocurrencies. A proponent of allowing people to take economic power into their own hands, Jeff has enthusiastically supported cryptocurrencies, not to mention the many benefits of blockchain technology. This interest propelled him to becoming a writer for, and later editor of, several cryptocurrency-focused websites. Jeff is a lifelong geek and gamer. He tries to keep up with the slew of TV shows and movies that fall into the fantasy/sci-fi/superhero genres, and he still plays pen-and-paper role-playing games on the weekends. He lives in Florida, USA, as he cannot stand cold weather.

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