When IRS Asks About Cryptocurrency On Your Taxes, Answer Carefully – Forbes

A new IRS question appears at the top of Schedule 1 to your 2019 Form 1040.It asks if you received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency at any time during the year. It is not asking for numbers or detail, although if you sold some, it should go elsewhere on your tax return. Since the IRS classifies crypto as property, any sale should produce gain or loss.Perhaps the IRS is just surveying who is using crypto, you might guess? Not necessarily, and a simple yes or no can turn out to be pretty important. Tax savvy people may recognize it as similar to the foreign account question included on the Schedule B. The question could set you up for big penalties or even committing perjury for checking the wrong box.

If you bought or sold crypto during 2019, pay close attention to the question at the top of Schedule ... [+] 1.

If a taxpayer answers no and then is discovered to have engaged in transactions with cryptocurrency during the year, the fact that they explicitly answered no to this new question (under penalties of perjury) could be used against them.So if you did any of the listed things, you check yes, right? What if you just have a kind of signature authority over crypto owned by your non-computer savvy parents or other relatives? That way, you can help them manage their crypto.If you sell a parents crypto on their behalf, at their request and/or for their benefit, should you answer yes or no to the question? Either way, should you attach an explanatory statement to the return explaining your relationship to the virtual currency?

There probably arent perfect answers to these questions. But what is clear is that answering no if the truth is yes is a big mistake. Skipping the boxes entirely might not be as bad, but it isnt good either if the truth is yes.If the truth is yes, say so, and remember to disclose and report your income, gains, losses, etc. Maybe thats the point of the question, as a prominent reminder. If this makes you realized that you forgot to report your crypto gains in past years, considering amending to fix it. Dont wait for the IRS to find you, even if you did not get one of those 10,000 IRS crypto warning letters last year. Just remember, the IRS is quite interested in crypto, and is taking steps to ferret out people who do not report.

The IRS appears to believe that millions of transactions might still be unreported. Taxpayers may think they will not be caught, but the risks are growing, and the best way to avoid penalties is to disclose and report as accurately as you can. IRS Commissioner Chuck Rettig has even moved to increase criminal investigations too. Last years IRS letters to 10,000 crypto taxpayers was just a start.

The new crypto tax question on your 2019 federal tax return should tell you something. After all, the Department of Justice Tax Division has successfully argued that the mere failure to check a box related to foreign account reporting isper-sewillfulness.Willful failures carry higher penalties and an increased threat of criminal investigation.The IRSs Criminal Investigation Division is even meeting with tax authorities from other countries to share data and enforcement strategies to find potential cryptocurrency tax evasion.

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When IRS Asks About Cryptocurrency On Your Taxes, Answer Carefully - Forbes

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