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Cryptocurrency tax compliance effort a success for asset owners and IRS

Bitcoin batch (2)

This summer the Internal Revenue Service launched an effort to make sure cryptocurrency owners comply with tax law.

The IRS treats the online money as an investment, not cash. It sent more than 10,000 Bitcoin et al investors letters to educate them of their tax responsibilities, encourage them to report their transactions and get payment where due.

The IRS crypto asset outreach appears to have worked.

Positive taxpayer and IRS responses: Not only did the IRS get responses to the letters (which is what you should always to when you get a notice from the federal tax collector), in many cases the IRS reportedly issued acceptance letters regarding the transactions as long as they were accompanied by supporting documentation.

That seems to indicate, notes Bloomberg Tax, that the IRS is more concerned about individuals who don't disclose digital transactions at all rather than those who try to comply but miss the tax-due mark.

In some cases, there's even better news. The IRS has issued some crypto currency owners refunds based on their responses to the letters.

"I personally worked with a user where the IRS was saying that they owed thousands of dollars on a CP2000 notice," Chandan Lodha, co-founder of the crypto price monitor CoinTracker, told Bloomberg Tax. "And then after they presented their full transaction history, the user actually ended up with a refund."

There's even the story, reported by several crypto websites, that one investor who, after answering the IRS letter, learned that he owed $3,900 in taxes. But after he paid the tax bill, the IRS gave him the money back as a refund.

Probably not true: I think this might be an apocryphal (or misinterpreted or wishful thinking) story.

Personally, I don't see Uncle Sam giving back rightfully owed taxes just because that person decided to comply with the law. Wouldn't such a precedent mean millions of us who do our tax duties every April (or October) deserve the same cash-back consideration?

That just wouldn't work for the U.S. Treasury.

Still, I like that the IRS is looking simply to get people to do the right thing. And I like it enough to award $3,900 this week's By the Numbers honors.

Plus, I send kudos to the IRS for not being overly heavy handed when it comes to dealing with this relatively new tax category.

Lodha agrees that the IRS deserves some credit for its handling of the crypto currency situation.

He told OhNoCrypto that the IRS' recent crypto compliance actions underscore the agency's message that it wasn't looking to be punitive. It just wants owners of the assets to comply with tax law.

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