The explosion in Bitcoin, Dogecoin, and other cryptocurrencies hasn’t escaped the notice of the Internal Revenue Service—and now the tax collector wants its cut of your profits.
The IRS is prioritizing an effort to enforce reporting on crypto trades to find people who have neglected to report their windfalls. And it’s starting with two lawsuits.
The Wall Street Journalreports federal judges have approved two IRS summons, to the payments company Circle and the crypto exchange Kraken, to turn over records of any customer who had over $20,000 in transactions since 2016.
The idea is to close the loop of poor reporting in the crypto space and bring it closer to the same requirements as stock trades. (The IRS obtained information on Coinbase Global’s customers five years ago and urged them to be sure to pay taxes on any crypto gains.)
That could mean a big windfall for the government. The IRS has already found one investor who failed to report $5.6 million in crypto transactions. And its search of Coinbase’s customers found 750 who had sold more than $100 million in cryptocurrencies.
Failure to pay taxes on crypto gains could result in substantial penalties and possibly jail time. Tax rates will vary depending on how long you’ve held the Bitcoin, Ether, or other digital currency. If you’ve held on for over a year, you’ll generally be looking at the long-term capital gains tax, which carries a lower rate. If you’ve flipped crypto in under a year, you’ll be facing short-term capital gains, which are taxed at the same rates as your wages.
Thinking of hiding your gains in an international account? The IRS, reports the Journal, says it intends to compare data it receives from Kraken with other data it has on hand from another source regarding offshore crypto transactions.