Looking For You, Bitcoin: IRS Moves Surveillance Crypto Question To The Top Of Page 1 On 1040 Tax Form

Looking For You, Bitcoin: IRS Moves Surveillance Crypto Question To The Top Of Page 1 On 1040 Tax Form

crypto question
Looking for you, Bitcoin: IRS moves surveillance crypto question to the top of Page 1 on 1040 Tax Form. That means everyone has to answer.Image: MMG

The new U.S. tax form is out for 2020 and a controversial cryptocurrency question is at the top of form 1040, the tax form used by about 150 million people to file their taxes. 

The Internal Revenue Service (IRS) question reads: At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

This is the second year that the IRS has included the question on tax forms, but in 2019, it appeared on Schedule 1, the form used for declaring “Additional Income and Adjustments to Income.”

Cryptocurrency is taxed as property. Taxpayers are required to report any transactions involving virtual currency as U.S. dollars on their tax returns. To do so, they need to determine its fair market value as of its transaction date, according to Accounting Today.

“This has created opportunity for accounting firms nationwide to start offering cryptocurrency tax services, and indeed many medium-to-large firms already started offering crypto services before the IRS added the question to 1040 forms,” Accounting Today reported. “There are also tech companies offering solutions to help accurately report cryptocurrency investments, like Cointracking, Cointracker, Koinly and Accointing.”

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Some tax experts believe that the agency’s crypto question is unconstitutional, Bitcoin.com reported.

Justin Winston Ono Wales, a crypto lawyer, tweeted that the IRS’ question “is way too broad and should be challenged.” He added, “If you get paid in crypto, you must declare it as wages. If you realized gains from a crypto investment, you must declare it as a cap gain. But constitutionally, the gov should not know whether you purchased, received, or acquired crypto because crypto is not just money … public chains like Bitcoin requires a native currency (BTC) to access its network. BTC is sound money, but also much more.

“This information is beyond the purview of information the IRS needs to do its job,” Wales tweeted, adding, “IRS asking US residents to declare all crypto is as inappropriate as asking citizens to declare all email addresses, social media handles, or data plans.”

The updated IRS form doesn’t ask taxpayers to list crypto holdings, but to declare if they received or sold crypto within the year, no matter the reason.

Another crypto lawyer, Rafael Yakobi, tweeted in response, “Unless I’m mistaken, the IRS does not require or expect you to ‘declare all crypto you received, sold, sent, exchanges or acquired’ they simply expect people answer yes or no as to whether they did any of those things. There’s a really big difference between those two things.”

In 2019, if you didn’t file a Schedule 1, you did not have to answer the virtual currency question. By adding the virtual currency question on page 1 of the tax return, everyone who files a personal tax return for 2020 will have to answer the question, Forbes reported.

In July 2019, the IRS sent 10,000 letters to crypto investors urging them to pay their taxes. A second round of warning letters was sent out in 2019 targeting taxpayers who the IRS believes may have intentionally misreported crypto transactions.

Crypto users have again received tax warning letters from the IRS dated Aug. 14, CoinJournal reported.

“It is unclear, at the moment, how the IRS even managed to get its hands on information about these crypto users or how many crypto users received the letters,” according to CoinJournal. “We can’t rule out the possibility that the IRS got this information through crypto exchanges that collect and store user data for Know Your Customer purposes.”