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3 New Tricks the IRS is Pulling Out Its Sleeves This Tax Year
With tax season right around the corner, the IRS is on the hunt for tax evaders, and they're starting with Venmo, Zelle, CashApp, and cryptocurrency holders. They’re pulling out all the stops to make sure that everyone pays, From new reporting requirements to increased investigations, they got 80 billion in funding to do it. There are 3 ways the IRS is cracking down on tax fraud this year.
#1) The IRS is coming for those digital wallet payments
The IRS is requiring all financial institutions to report payments made through Venmo, Zelle, and CashApp. You might be in the clear if you've been using the app to receive payments from your friends for dinner or split a cab fare. However, if you received $600 or more uncle Sam is coming for his cut and he wants all of it – the IRS can now see all of your digital wallet transactions. This is in an effort to crack down on those who are using these platforms to make unreported income. The agency will be sending out 1099k forms to those who have received over $600 in payments through these apps. So if you've been hiding some income or receiving under-the-table payments, beware and don’t file that 1099k form: just know, the IRS is coming for you.
#2) The IRS is coming for your cryptocurrency
The IRS is also coming for cryptocurrency. Crypto cases will top the agency’s criminal investigation ‘to-do list’ in 2023. So if you’ve been thinking about hiding your income in Bitcoin, you might want to think again.
Payments in Crypto
Now let’s address what happens when you take crypto as payment for goods or services rendered. Suppose you’re in business as an attorney. Your retainer fee is $5,000. A client pays you five crypto coins worth $1,000 each. The fair market value of the coins as of the date they are paid to you is $5,000. That amount must be reported by you as income in the year received.
Now, you may counter by saying that since you didn’t sell the coins, there’s no profit: not true. Your profit is measured by the fair market value of the coins as of the date you take them as payment.
At that point, your basis (purchase price) in the coins is equal to the fair market value on the date of receipt — in this case, $1,000 per coin. Suppose you sell the coins later for $1,500. At that point, you have a profit (capital gain) of $500 per coin, which also must be reported on your tax return in the year of the sale. On the other hand, if you sell for $800 per coin, you have a loss of $200 per coin, which may be claimed as a capital loss (subject to certain limitations) in the year of the sale
IRS and the Tracking of Digital Currency
Too many people believe that the IRS has no way to track digital currency; therefore, if one fails to report trades, nobody will be the wiser. This is a serious mistake. The IRS has made great strides in tracking digital currency. The best proof of this is the case of Ilya Lichtenstein and his wife, Heather Morgan, of New York. The pair were arrested in Manhattan in February 2022 and charged with conspiracy to launder $4.5 billion in Bitcoin that they allegedly stole by hacking a virtual currency exchange in 2016. The IRS’s CI was instrumental in breaking the case. So if they were able to track their every payment and transaction, they could definitely track yours.
#3) The IRS’s Manpower is At An All-Time High
Finally, the IRS has increased its workforce devoted to investigating criminal cases. The agency now has 2,427 special agents and 1,088 professional support staff, the highest it’s been since 2010. And 80 billion in funding, they’re not messing around. For all the bungling the IRS sometimes displays, the agency’s special agents are not among the bunglers. They are highly trained professionals who are singularly focused and know exactly what they are doing. If you have crypto profits or receive payments over $600 on your digital wallet do not make the mistake of believing that the IRS cannot or will not find them. The agency is making these cases a priority in 2023.
In Conclusion,
The bottom line is that the IRS is cracking down on tax fraud like never before. So if you’re thinking of cheating on your taxes, think again. You’re not going to get away with it. If you are unaware or unsure of the tax consequences of your crypto trades, digital wallet payment to receive, or how to fill out your 1099k do not go it alone!
If you need additional help feel free to reach out to me. I have a large team of CPAs, Enrollment Agents, and Tax Attorneys that could assist you regardless of your situation.
Email: info@DaleFerdinand
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