Gone are the days where U.S. Internal Revenue Service (IRS) steered clear of demanding tax remittance from Cryptocurrency hodlers and traders. In its latest set of actions, the IRS has sent out compliance notices to Digital Token traders.
The letters target investors with questionable tax remittance history. The basis that the agency has used in identifying the dubious tax reporting cases is a mismatch of information between private declarations and declarations from third party reporters such as financial institutions and employers.
This is not the first time that the agency has issued notices of compliance queries to Crypto hodlers taxpayers. This growing trend is hence an indication that Digital Tokens are being viewed as commodities and liable for taxation. Additionally, Digital Tokens the integration of Cryptocurrencies in mainstream systems is on heading in the right direction.
The IRS Is Offering Tax Compliance Support
It is critical for the recipients of the CP 2000 notice letters to understand that the IRS is not seeking to take punitive action over the suspected mismatch of tax declarations. According to an IRS official announcement, Crypto tax players are being advised that the CP 2000 notice letters seek to identify whether taxpayers agree or disagree with the tax computations.
In this perspective, the tax agency has laid out an elaborate framework for identifying the root causes of data discrepancies to resolve the issues. Some of the innovative measures are the provision of telephone contacts for IRS telephone assistors. The team will liaise with taxpayers to strike common ground in the pertinent issues that may arise.
A Timeline For Responding Is Specified
Even though the IRS aim in issuing the letters is not focusing on auditing Crypto taxes remittances, it is still a requirement that payees respond to the CP2000 letters. The given timeline is 30 days from the date on the letterhead. The responses will enable the agency to gather data on the opinions of taxpayers to offer better services.
Afterward, the IRS will dispatch a second Statutory Notice of Deficiency letter codenamed IRS Notice CP3219A if the response is deemed insufficient or the taxpayer fails to respond to the CP2000 letter.
Taxpayers should also note that they can challenge the content of the IRS Notice CP3219A in a court of law for dispute resolution.
The IRS Targets 10,000 Crypto Investors
The issuance of the tax letters is part of an ongoing IRS initiative to tap into the growing Crypto economy to widen the US tax base. In July, 10,000 Crypto investors received advisory letters requiring them to either pay income taxes, file amended returns for improper tax properly declarations, or report virtual currency transactions.
At the point, traders were warned that tax fraud could attract tough penalties such as criminal prosecution, interest chargebacks, and penalties.
Asset Or Currency?
Despite the IRS classification of Cryptos as commodities, there is no clear policy that definitively classifies Digital Tokens. Hence, capital gains laws also apply to virtual currencies.