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IRS Set To Hit Bitcoin Investors With Large Tax Bills

internal revenue service

Rob Crandall / Shutterstock.com

Bitcoin investors could be hit with a large tax bill as the Internal Revenue Service (IRS) is looking to get a piece of the pie as the tax man has been keeping a close watch on the cryptocurrency industry and the massive returns it has given investors in recent months.

Cryptocurrencies are no longer viewed as a medium of exchange but are now looked up as assets and items of value.

This exposes investors to potentially crippling taxes and a number of them are now concerned with the potential taxes they will have to pay in the near future.

IRS Get Ready To Claim Their Dues

This problem popped up when a contributor on Reddit announced that he ended up owing the IRS $50,000 after trading in cryptocurrencies. He said all of his tax liability came from the fact that he sold $120,000 worth of Bitcoin and used it to buy different coins. All those coins now put together are worth just $30,000 while his tax bill is $50,000.

The trouble is that while cryptocurrencies are designed to evade government control and bank oversight, tax authorities are still interested in claiming their share. Cryptocurrencies are not categorized as a form of currency but instead labeled as property for tax reasons.

Bitcoin’s massive rise in value in 2017 saw millions of investors jump on the cryptocurrency bandwagon. The IRS considers anything bought with digital currency as taxable under capital gains. This means that anyone who cashed out or paid with cryptocurrency will have to report it to the IRS.

IRS Could Face Issues In Finding Crypto Currency Investors

Last year, a California US district court judge ordered Coinbase, one of the biggest Bitcoin trading platforms in the world, to give the IRS identifying information on accounts worth that have traded at least $20,000 during 2013 to 2015. This was because only about 800 taxpayers claimed bitcoin gains from 2013 to 2015 when there should have been noticeably more. Not reporting capital gains can be considered tax evasion.

A lot of crypto-investors avoid getting familiarized with their tax responsibilities as it can come across as a bit daunting and time consuming. There are several instances where cryptocurrencies are taxable and they include crypto-to- crypto transactions and cryptocurrency purchases. However, there may be problems when the IRS decides to go after those skipping out on their tax responsibilities.

In a statement, Doug Sipe, a tax accountant said

Even they are getting notifications on transactions over $20,000 what does that actually mean? Do they have a social number? They may know of a transaction, and they may have a name, but can they enact any kind of enforcement? The question is what kind of information have investors given – besides an email address when they registered for an account?

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