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Crypto Investors Get Warning Notices From the IRS

26 November 2020 15:00, UTC
Crypto Investors Get Warning Notices From the IRS
By Nick James

This comes as a result of many investors not reporting their real gains in cryptocurrency. For this reason, the Internet Revenue Service in the United States (IRS) has sent out many letters to crypto investors reiterating the fact that they have pending taxes on their unreported profits from cryptocurrency. This was the case last year, where the IRS saw the need to send out notices of tax evasion to crypto-investors.

It had come to the notice of the IRS that several crypto investors recorded the wrong tax returns information from what was filed with the IRS. Thus in a CP2000 notice by the IRS sent out to individuals of the CryptoTrader.tax provider service, the taxation institution is out to get any trader filing in the wrong tax returns or evading taxes.

Unlike the belief of the IRS, many experts stated that this is a mistake on the part of the IRS because crypto trades use form 1099K and Coinbase. This has not stopped the IRS from issuing out CP2000 notices to several individuals.

At times, people often get the false notion that cryptocurrencies are not part of the forex markets. Yet, it is. Cryptocurrencies fall under the fintech branch of the financial markets, and there is a wide range of them including Coinbase, Bitcoins, Ethereum, and a whole lot more. And forex brokers, as well as traders, are worried about the effects of the IRS confusing the 1099-K statistics for a trader’s real tax returns, when in fact it records a whole lot of information and numbers including the losses made by the investor, making it difficult for the IRS to actually identify what the real tax returns of the traders are, using the 1099-K method, leading them to think that traders are evading taxes. The problem with it according to this Forex Trading Bonus website is that many traders could get into trouble with the 1099-K analysis and might find themselves with the burden of proof to the IRS, trying to indicate that they are not evading taxes to avoid paying more for their real income.

Facts

The CEO of CryptoTrader.Tax, David Kemmerer made some comments, saying that 1099 was not supposed to be a form of reporting the income from cryptocurrency. He further said that the 1099K was designed for crypto investors to receive payments from businesses such as Etsy, Lyft, and Uber directly with Coinbase using the 1099K as a way to report their earnings from customers.

Kemmerer didn’t support the IRS using the 1099K as a method of identifying the profits of traders because neither the trader’s profits nor losses can be determined by this instrument. Because what it does is, provide the total earnings of an investor, including their personal transactions. Thus, this is challenging for the platform. 1099K makes a sum of all the transactions affected by the investors in their coin base accounts and directly reports the information to the IRS, rather than reporting just the profits and losses of trades. And with such a design, it might create a false impression that investors do not report the right income on their tax returns, which is not the case, according to Kemmerer.

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