IRS Rules On Crypto Reporting Just Got Even More Confusing

At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

On March 2, the IRS updated the Frequently Asked Questions (FAQs) on Virtual Currency Transactions. The new FAQ provides that taxpayers whose only crypto transactions include the purchase of virtual currency with real currency need not answer yes to the question on the front page of the 2020 IRS Form 1040. This instruction is directly contrary to the plain reading of the simple question on cryptocurrency, which is highlighted in red here:

I’ve previously written about IRS enforcement of Crypto account holders here, here, and here. Uncovering crypto account holders is a key part of stepping up enforcement in this area, and as I explained just two weeks ago, the IRS is laser-focused on criminal and civil enforcement in this emerging area of taxation.

Both the 2020 IRS Form 1040 and the 1040 instructions provide that a taxpayer who engaged in any transaction involving virtual currency must check the “yes” box next to the question on page 1 of Form 1040. But the 1040 instructions provide a little more color, explaining that “A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control.”

The FAQs released today provide:

Should crypto account holders who bought, but did not sell, virtual currency in the year 2020 answer “No” to the question based on this FAQ and the 1040 instructions?

I wouldn’t bet a single Bitcoin on it.

First, informal IRS guidance such as FAQs – and even the Internal Revenue Manual – can’t be relied on by taxpayers. Yes, you read that right. The IRS is allowed to and does publish guidance in the form of FAQs and the Internal Revenue Manual to assist taxpayers (and Revenue Agents) in navigating the web of tax law. But there is an abundance of caselaw that says taxpayers don’t have “rights” based on them and can’t try to enforce them.

Eaglehawk Carbon, Inc. v. United States, 122 Fed. Cl. 209, 221 (2015) (noting that “it is beyond cavil” that I.R.M. provisions “do[ ] not have the force of law”); Fargo v. Commissioner, 447 F.3d 706, 713 (9th Cir. 2006) (noting that “[th]e Internal Revenue Manual does not have the force of law and does not confer rights on taxpayers”); Valen Mfg. Co. v. United States, 90 F.3d 1190, 1194 (6th Cir. 1996) (noting that [“[t]he provisions of the manual, however, only ‘govern the internal affairs of the Internal Revenue Service.

They do not have the force and effect of law,’” quoting United States v. Horne, 714 F.2d 206, 207 (1st Cir. 1983)); and Marks v. Commissioner, 947 F.2d 983, 986, n.1 (D.C. Cir. 1991) (noting that [i]t is well-settled … that the provisions of the [I.R.M.] are directory rather than mandatory, are not codified regulations, and clearly do not have the force and effect of law.”).

Second, answering no to the question when the actual answer is yes based on the FAQ or instructions to the 1040, while technically correct, could lead to adverse consequences. Simply purchasing virtual currency does not create a taxable event. Even if no tax is due in year 2020, if a taxpayer answers no in 2020 based on the FAQ but then does not file a tax return for 2021, or files a tax return that omits a crypto transaction, rest assured that the IRS will argue that answering no in 2020 was evidence of intent to conceal the crypto.

And for that matter, so will the Department of Justice, Tax Division. Even if a taxpayer is later vindicated, simply going through an IRS civil or criminal exam can be costly in time, emotional distress, and money on professional fees.

While common sense says it should be perfectly fine to answer “No” based on the FAQ, as a tax litigator who defends clients in civil and criminal tax disputes with the IRS, I’ll advise my clients who bought but did not sell crypto to answer yes, unless there is a compelling non-tax reason not to.

Follow me on Twitter or LinkedIn. Check out my website.

I try tax cases in tax court and federal courts, represent taxpayers who are examined by the IRS, and represent tax professionals who get into disciplinary trouble.  I’m also a professional partnership representative.  My practice is in Chicago but my clients are all over the country and the world.  Email me at guinevere.moore@mooretaxlawgroup.com and follow me at @Mommytax

Source: IRS Rules On Crypto Reporting Just Got Even More Confusing

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Building The Customer First Mindset

Agile is often thought of as a process when it’s really a mind-set (supported by processes, of course). Yes, it’s about testing and learning, and new ways of working, but at the heart of agile is the determination to provide the customer with something she or he wants or needs. That’s the point. Enshrining this principle across the business provides a consistent point of reference. But while almost every company will claim to be “customer first,” a closer look under the hood often reveals that internal efficiency or profit rather than customer need is the true driving force.

An agile mind-set starts from the premise that everyone is responsible for the customer, be it the CEO who determines the business strategy, the salesperson directly serving the customer, or the data scientist developing analytics platforms. You will only be able to embed agile ways of working once this becomes a core value, providing cohesion and purpose. This isn’t about doing your job better; it’s about serving the customer better.

The way a true customer-first ethos comes to life is through design—the process of integrating the customer point of view into all development.

This is much more than gathering insights or building elegant websites. It’s about building an adaptive learning process around the customer for everything the company does.

Getting design right is worth a lot. Companies in the top quartile of the McKinsey Design Index, which rates companies by how strong they are at design, outperformed peers in their sector in terms of growth by as much as two to one.

Here are two of the most important things the winning companies do:

1. They Make Huge Efforts To Know The Customer

A design approach requires solid customer insights to understand the real needs of potential users. Yet only around half the companies McKinsey surveyed conducted user research before generating their first design ideas or specifications.

One international pizza chain wanted to improve home delivery, a crowded market where consumers were already spoiled for choice. Data analysis revealed that one of the biggest drivers of customer satisfaction was how hot the delivered pizza was. This fact led the business to invest in “Intelligent Kitchen” technology, which determines when orders are baked based on the delivery address, driver availability, and current location, as well as road conditions to ensure the customer got a piping hot pizza. This approach grew overall sales 7 percent in the first  year, and more in the years following.

The best results come from constantly blending both quantitative and qualitative research. One top team invites customers to its regular monthly meeting solely to discuss the merits of its products and services.

And the CEO of one of the world’s largest banks spends a day a month with the bank’s clients and encourages all members of the C-suite to do the same.

2. They Continuously Improve With Customer Feedback

Continuous improvement is key to success for a digital transformation. This is the raw learning capability. You can see it in companies that foster a culture of sharing early prototypes with outsiders and discouraging excessive time spent on mock-ups or internal presentations. Despite the value of iteration, however, almost 60 percent of companies in our survey said they used prototypes only for internal-production testing, and even then, only late in the development process.

New technologies allow companies to uncover insights and test products in a dramatically faster way than traditional market research or focus groups. Digital marketing teams can convene online customer panels using video chats and watch as the panels test products and provide feedback in real time. One insurer created digital diaries to help identify customer pain points that would previously have gone undetected.

Similarly, digital companies can quickly A/B test new products and campaigns with thousands of customers in hours or days.

Agile Defined


Agile isn’t just a process. It’s a mind-set that puts customer objectives first. Team autonomy works best with guiding principles about what needs to be done and why.

Agile coaches are necessary to train people to learn new skills fast—leaders included.

Agile budgeting helps scale agile by quickly allocating money to projects.

Agile ways of working can’t take hold unless they are supported by stable processes.

Design thinking is the commitment to completely understanding your customer.

Contributed to BSI By: Arun Arora, Peter Dahlstrom, Klemens Hjartar, and Floria Wunderlich. Excerpted from their book Fast Times: How Digital Winners Set Direction, Learn, and Adapt (Amazon Publishing)

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Shep Hyken: Customer Service & CX Expert

Go to http://www.TheCustomerFocus.com or call 314-692-2200 to learn more about Shep Hyken or to learn about customer service training. Your people attend customer service training. They learn techniques and tactics on how to deal with complaining customers, angry customers or customers who just need a little support. They are taught the right answers to some difficult questions. This is what customer service training is all about. But… What happens when something happens that is outside of the parameters of the training your employees have received?

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