As Crypto Whales Rejoice, Uncle Sam Doubles Down on Tax Enforcement
A recent US District Court order has empowered the IRS to obtain more information about cryptocurrency users on Kraken. This order results from one in a series of actions taken by the IRS to enforce tax compliance and minimize tax evasion via cryptocurrency trading. Unlike regulated financial transactions, which fall under government regulatory frameworks, cryptocurrency transactions take place outside government monetary networks making it difficult to track and audit. However, governments around the world are working to close this loophole. In this post I explore recent developments aimed at closing the US tax gap. I also highlight why US high net-worth individuals and businesses with investments in cryptocurrencies must make tax risk assessments now more than ever before.
1. Use of John Doe Summons:
one of the tools used by the IRS to obtain information about cryptocurrency holders is the John Doe Summons (“the Summons”). The Summons allows the IRS to request information from crypto exchanges about users who conduct at least $20,000 worth of transactions in a tax year. The Summons works as an investigative tool against an “ascertainable group or class of persons” who are reasonably believed to be non-compliant with tax laws. The IRS Criminal Investigation Division can recommend an erring taxpayer for…
