IRS Is Catching Crypto Tax Cheats Via John Doe Summons

In this photo illustration the cryptocurrency electronic...

The IRS is actively hunting for crypto tax cheats by demanding cryptocurrency exchanges release user information through “John Doe” summons. Once John Doe summons are issued, exchanges are legally required to release requested user information to the IRS. On March 30, 2021 a John Doe summons was issued to Kraken. On April 1, 2021, another John Doe summons was issued to Circle (owner of the cryptocurrency exchange Poloniex).

The John Doe summons issued to Kraken and Poloniex require exchanges to release user information from 2016 to 2020 on accounts with at least $20,000 in transaction value in any of those years. According to the IRS Commissioner Chuck Rettig, “The John Doe summons is a step to enable the IRS to uncover those who are failing to properly report their virtual currency transactions. We will enforce the law where we find systemic noncompliance or fraud.”

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You should pay your cryptocurrency taxes, but if someone wanted to avoid crypto tax…I guess this is how they would avoid the crypto capital gains tax. Sure, the taxation of cryptocurrency seems strange. But taxes on crypto are something that is going to happen when there’s so much money out there. 00:00 How to avoid crypto taxes 00:33 Avoid KYC Exchanges 04:06 Pay for things with crypto (from a non-KYC exchange) 06:12 Crypto Taxes 07:54 Bitcoin ATM 09:16 Sell your crypto on eBay 11:31 Crypto Shopping
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The IRS also believes that these summons will also encourage non-compliant crypto holders to be compliant with crypto taxes. “Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that the IRS is working to ensure that they are fully compliant in their use of virtual currency,” said Commissioner Rettig.

Usually, summons issued to crypto exchanges are followed by the IRS sending out tax notices to individuals under investigation. For example, last year the IRS sent out Letter 6173, 6174 and 6174-A to American taxpayers in the aftermath of a previous John Doe Summons issued to Coinbase.

Taxpayers who have properly filed their crypto taxes during the years under investigation (2016 – 2020), should not be concerned about these subpoenas. However, those who have failed to file crypto taxes should consider filing delinquent tax returns. If any cryptocurrency transactions were omitted or misreported in previous filings, taxpayers can also consider amending those returns after consulting with a qualified tax professional or cryptocurrency tax software.

Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Shehan is the Head of Tax Strategy at CoinTracker.io (bitcoin & crypto tax software). He is one of the handful of CPAs in the country who is recognized as a real-world operator and a conceptual subject matter expert on cryptocurrency taxation. He is a CPE instructor who has been awarded with various awards: 2019 CPA Practice Advisor 40 under 40 accounting professionals, Outstanding Young CPA of the year & Among 21 accountants mentioned on Accounting Today who will be helping shape (and reshape) accounting in 2020 and beyond by Accounting Today

Shehan is a renowned speaker who has done speaking engagements with many organizations including Google, Coinbase, Lyft, AICPA, American Bar Association, and State CPA Societies.

Source: IRS Is Catching Crypto Tax Cheats Via John Doe Summons

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TokenTax has been rated best software for calculating and filing your crypto taxes. Connect any exchange, track your gains, and automatically create your tax forms.
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DeFi Crypto Tax Guide (2020) | CryptoTrader.Tax
cryptotrader.tax – March 20
In this article, we dive into these questions and share the fundamentals of DeFi taxes as they relate to lending, borrowing, yield farming, liquidity pools, and earning.

Tax Refund Chart Can Help You Guess When You’ll Receive Your Money In 2021

Hear that? It’s the sound of millions of taxpayers cheering across the country: the Internal Revenue Service (IRS) has announced the open of the tax filing season. That date is February 12, 2021.

If you want to get your refund as fast as possible, the IRS recommends that you e-file your tax return and use direct deposit (be sure to double-check those account numbers before you send your return). If you file by paper, it will take longer. According to the IRS, eight out of 10 taxpayers get their refunds by using direct deposit.

Assuming no delays, here are my best guesses for expected tax refunds based on filing dates and information from the IRS. I can’t stress enough that these are simply educated guesses. I like math and charts as much as the next girl, but there are a number of factors that could affect your tax refund (keep reading)

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refund chart
KPE

* No matter when you filed your tax return, if you claimed the EITC or the ACTC, don’t forget to take into consideration that hold date.

My numbers are based on an expected IRS receipt date beginning on the open of tax season, February 12, 2021, through the close of tax season on April 15, 2021. To keep the chart manageable, I’ve assumed the IRS received your e-filed tax return on the first business day of the week; that’s usually a Monday, but if there’s a holiday (like President’s Day), I’ve skipped ahead until Tuesday. The same logic holds true for issuing refunds. In reality, the IRS issues tax refunds throughout the week, so the date could move forward or backward depending on the day your return was received.

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Other sites may have different numbers but remember they’re just guessing, too: The IRS no longer makes their tax refund processing chart public.

Do not rely on any tax refund chart—this one included—for date-specific planning like a large purchase or a paying back a loan. 

Remember that if you claim the earned-income tax credit (EITC) and the additional child tax credit (ACTC), the IRS must wait until February 15 to begin issuing refunds to taxpayers who claim the EITC or the ACTC (that’s pretty close to the start date). Don’t forget to consider regular processing times for banks and factor in weekends and the President’s Day holiday. The IRS expects to see tax refunds begin reaching those claiming EITC and ACTC during the first week of March for those who file electronically with direct deposit and there are no issues with their tax returns.

If you want to get your tax refund as fast as possible, the IRS recommends that you e-file your tax return and use direct deposit. Keep in mind that if you e-file, the day that the IRS accepts your return may not be the day that you hit send or give the green light to your preparer. Check your e-filing confirmation for the actual date that the IRS accepts your return.

If you file by paper, it will take longer. Processing times can take more than four to six weeks in the best of times (and these are not the best of times) since the IRS has to manually input data. Don’t forget about postal holidays, too, when counting on the mail. There’s just one official postal holiday during tax season, Monday, February 15 (President’s Day), and one that follows just after tax season, Monday, May 31 (Memorial Day).

Even if you request direct deposit, you may still receive a paper check. Since 2014, the IRS has limited the number of refunds that can be deposited into a single account or applied to a prepaid debit card to three. Taxpayers who exceed the limit will instead receive a paper check. Additionally, the IRS will only issue a refund by direct deposit into an account in your own name, your spouse’s name or both if it’s a joint account. If there’s an issue with the account, the IRS will send a paper check.

If you’re looking for more information about the timing of your tax refund, don’t reach out to your tax professional. Instead, the IRS encourages you to use the “Get Refund Status” tool. Have your Social security number or ITIN, filing status and exact refund amount handy. Refund updates should appear 24 hours after your e-filing has been accepted or four weeks after you mailed your paper return. The IRS expect that the refund tool will be updated for those claiming EITC and ACTC, beginning on February 22, 2021. Otherwise, the IRS updates the site once per day, usually overnight, so there’s no need to check more than once during the day.

If you’re looking for tax information on the go, you can check your refund status with IRS2Go, the official mobile app of the IRS. The app includes a tax refund status tracker.

Remember that the IRS will not contact you by phone or by email regarding your refund. If you receive a call from someone claiming to be from the IRS or a debt collection agency regarding your tax refund, hang up immediately: it is a scam. Follow me on Twitter or LinkedIn. Check out my website

Kelly Phillips Erb

Kelly Phillips Erb Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

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Gregg Learning

Once the tax liability has been determined, we must consider the final three items in income tax preparation: tax credits, other taxes, and payments. When an overpayment occurs, the taxpayer has the option of receiving a refund or applying the amount of the overpayment to next year’s estimated tax.

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Why You Should Keep Tax Records For More Than Three Years

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A Pennsylvania citizen, who will be identified here as “P,” has a bone to pick with the collections agency that handles taxes for his municipality. P says he duly paid his 2015 local income tax, but just a few weeks ago got a nasty notice calling him a delinquent and demanding immediate payment of more than $2,000 in taxes and penalties.

P asks: Isn’t there a three-year limit on tax audits? What am I supposed to do if my bank can’t locate a five-year-old cancelled check? Do I have to pay the taxes twice? Short answer: Yes. If you don’t have good records you can get nailed for taxes you don’t really owe. Three years of documents won’t cut it. Seven years is more like it. Some tax records should be kept on hand until you’re dead.

Barry Dolowich, a CPA in Monterey, California, is representing a Nevada citizen who just got a dunning notice from California’s notoriously aggressive Franchise Tax Board. What did this taxpayer do wrong? He inherited a house in California and sold it, at a loss, in 2015. He didn’t file a California income tax return for that year. The state wants him to fork over $30,000-plus on the supposition that the entire proceeds were profit.

David Caplan, a CPA in Lafayette Hill, Pennsylvania, is fighting for a taxpayer from whom the Internal Revenue Service wants to extract approximately $35,000. This client, now in her 80s, had a small business whose withholding taxes were handled by a payroll processor. It took the sleepy IRS a decade to figure out that the processor was embezzling money and forging powers of attorney in order to keep clients in the dark about delinquency notices. The crook is now in jail and evidently has scant assets. The former business owner paid the tax money once and may have to pay again.

There is indeed a three-year rule on tax audits, but it doesn’t provide the protection you think it does. Normally the IRS has three years from a return’s due date (or when you filed, if you got an extension) in which to challenge your numbers. Many states copy that rule; a handful, including California, stretch out the audit period to four years.

But there are exceptions. Three years becomes six if the tax collector can show that there is a “substantial understatement” of your liability. For the federal government, “substantial” means by 25% or more; state rules vary on this point.

The other exception is if no return was filed. On the theory that a nonfiler is akin to a fugitive bank robber, undeserving of having the clock run on a statute of limitations while he is in hiding, the three-year period does not start until the return comes in.

This presents a potential hazard for people who don’t retain yellowed records. A Pennsylvania township could in principle send out a notice declaring, “We were just going through some old punch cards and can’t find a record of your 1997 return. Please send in $2,000 plus 22 years of penalties.”

Matthew Melinson, a state and local tax partner in Grant Thornton’s Philadelphia office, says he hasn’t witnessed anything that egregious, but has seen states trying to collect ten years of tax from nonfilers. Given that records are now electronic, he says, you should keep returns for a long time—seven years, at least.

Herewith a nine-point guide to record retention:

1. Keep copies of income tax returns and proof of tax payments as long as you can.

2. Discard supporting documents (like receipts for business expenses and charitable donations) after seven years. That covers you for six years beyond your filing date.

3. Keep records of asset costs for seven years after you dispose of the asset, recommends Stephanie Pervez, who leads the private-clients practice at CohnReznick in New York City. If you bought a house in 1990, remodeled it in 2000, and sold it in 2019, you’d keep both sets of closing documents and the remodeler’s bill until 2026.

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4. Keep support for carryforward items (such as for capital losses) until seven years after using up the carryforward. Says David Klasing, an Irvine, California, attorney representing clients with big tax headaches: “A lot of times they won’t contest the original accrual of a net operating loss until you try to use it.”

5. Keep copies of gift tax returns forever. Your executor may have to attach them to an estate tax return, Pervez says.

6. Maximize the value of your health savings account by preserving both the assets and medical receipts for a long time. Instead of using the HSA to cover co-pays and other costs, you pay them out of your checking account and let the HSA grow. In retirement, you pull the money out, making the withdrawal tax-free by matching it to past medical costs, which can stretch back for decades. The strategy only works if you can retrieve the receipts.

7.  Consider filing a nonresident return, perhaps one showing a small amount of income, in states where you have some business connection. That starts the clock running on an audit period, and might protect you from an open-ended tax grab going back a decade. California, in particular, is known for an expansive notion of what constitutes local income. It went after a scriptwriter living in Arizona because the scripts were used by California film companies.

8. Keep proof of filing. Melinson has his clients retain either a certified mail receipt for a paper return or an email confirming acceptance of an e-filed return.

Here’s another way to establish that a return was received. Instead of having all your refund applied to the next year’s estimated tax, direct $20 of it into your bank account. Keep the bank statement.

9. Keep an eye on your tax preparer, or payroll tax handler. Tax collectors are predictably reluctant to give a break to victims of dishonest intermediaries, lest taxpayers seek out sketchy ones in order to lower their tax bills. But if you can document your diligence you might get mercy.

What will become of the forlorn taxpayers cited above? Taxpayer P is the victim of Pennsylvania’s quirky local-tax system. Much in the manner of a feudal king farming out tax collection to independent agents, municipalities delegate enforcement to private-sector firms, sometimes dropping the ball in the hand-off. For P, the middeman is Kratzenberg & Associates, doing business as Keystone Collections Group. A Keystone executive says this taxpayer can get his problem quickly resolved if he has the right documents.

The Nevadan with the house in California? He will probably owe the state little. The house, with a cost basis stepped up to the value on the owner’s death, was clearly sold at a loss. The worst that the Franchise Tax Board can do is to impose a failure-to-file penalty, and accountant Dolowich hopes this penalty will be waived.

The retiree with the ancient payroll tax liability may be out of luck. Accountant Caplan says the IRS agreed to a reprieve for her and some of the other victims on the hook collectively for at least $3 million. Then the agency changed its mind. She and 100 or so other taxpayers are in limbo.

Follow me on Twitter.

I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979.

Source: https://www.forbes.com

How long should you keep your tax records? The IRS website has a page that claims to answer this question: https://www.irs.gov/businesses/small-…
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