The US tax authority does not appear to be very efficient when it comes to tracking down who should be taxed for operations with cryptomorphs, at least for the time being
The taxation of income on profits with cryptomorphs is an obscure arena at the moment. It seems that even the US Internal Revenue Service, or IRS, has difficulty finding out who owes what, according to Wendy Walker, from the Sovos tax compliance company.
„In the typical tax system, the IRS uses 1099 reports,“ Walker told Cryptosoft in an interview. „So 1099, W2, that tax report, is the main tool they use to enforce tax compliance,“ he added. When people stop reporting their cryptomore-related activities, the IRS gets a headache.
In 2019, 10,000 people involved with cryptoactives received warning letters from the IRS, informing some people that they owed money or had incurred fines. Others were instructed to add their crypto activities to the reports.
The tax authority also recently added a question to the top of Form 1040, asking the filers whether they dealt with crypto during the relative tax year.
„Now they’re getting all this information back to prove they need to filter,“ Walker explained. „To combat this huge stack of data, in May 2020 the IRS released its request for proposal, or RFP – a search for people with digital asset experience to navigate the stacks of information, Walker mentioned.
„My point is that they handle it the hard way. This question about the 1040, this RFP for people to look at the information that’s been sent back, tax letters to taxpayers – it’s like they’re throwing things out there to see what’s going to stay. „
The difficulty arises from old processes which in some cases present difficulties in adapting to the new possibilities brought by technological innovation.