Author Topic: Disturbing Question on 2019 IRS Tax Form  (Read 6623 times)

seattlecyclone

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #50 on: February 04, 2020, 08:16:11 PM »
You could write in "none of your business" instead of lying. Let us know how that goes.

Gremlin

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #51 on: February 04, 2020, 09:59:34 PM »
Man I have never wished an IRS audit on someone so badly as I do now. OP, you're insufferable.

Maybe a good contender for this thread:
https://forum.mrmoneymustache.com/off-topic/op-is-the-only-one-who-doesn't-see-it/
I have no idea what the heck they're discussing in that thread.
Oh, the irony...

MustacheAndaHalf

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #52 on: February 04, 2020, 11:59:21 PM »
Prior to the IRS cracking down on cryptocurrency, fewer than 1000 people in the USA were reporting their crypto transactions, despite the fact that Coinbase had 10 million users in the same period.
It sounds like you know of a source that I'm very curious to learn more about.  And just to illustrate how conservatively I deal with taxes I reported gains on sale of crypto years ago.  So I'd like to figure out if I'm in the 1,000 club.  :)

From what I've read about the IRS, they like to target celebrities.  It not only helps tax compliance, but it could help them when Congress goes to provide funding for the IRS.  Because I pay taxes honestly, I'm in favor of more funding for the IRS - which is also the most profitable thing Congress can do with it's budget.  I think it's roughly a 6:1 profit... if they hire IRS auditors, they recover 6x more in taxes than the salary/expenses of the new employees.  That, in turn, means tax rates can remain at current levels, since needed money comes in without raising taxes - so there's a selfish motive in there, too. :)

By the way, today's taxes are at historically low levels.  The highest bracket in 1980 was 50%, and in 1970 it was 70%.
https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal.pdf
To me, that suggests I might want to pay more taxes now, and remove the uncertainty of future tax changes.

MustacheAndaHalf

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #53 on: February 05, 2020, 12:11:21 AM »
I have never bought or sold crypto, but when you buy it, do you not have a cost basis you have to keep track of, like your broker does for your stocks or mutual funds?

When you sell in hypothetical 5 years, wouldn't you then have to calculate capital gains, and also have know when you bought it, to know if to use long vs short-term capital gain calculations?

Honest questions.  No comment on legality of those IRS questions.
I do have a cost basis for some of my digital currency, but not all. This is because I did a lot of trading in 2017 & 2018, exchanging one cryptocurrency for another, so the cost basis is now very difficult to calculate for most of my holdings, as all the activity obscured it. The way I plan to deal with this issue when I finally sell is to pay the IRS more tax than I owe them. I will take the financial hit in order to ensure that I'm square with them.

If you were exchanging cryptocurrencies in 2017 and 2018, the IRS already knows you have cryptocurrency. Each exchange is a taxable event, not just when you convert them to dollars.

As was pointed out before, there is no legal loophole here just because you want there to be one. There is a statement where you sign, as pointed out by @seattlecyclone, stating that the return is true, accurate, and complete, under penalty of perjury.

Just because you want it to be optional, doesn't make it optional.
Seems like CPAs in this thread both favor accurately answering the question on form 1040.

I'm curious about a third choice nobody has mentioned yet: What if someone printed out their returns, and filled out everything correctly - but left that question blank.  They refuse to check yes or no on their tax form.

Based on my lay experience and books I've read, the IRS might choose to do nothing.  Ignoring this question has $0 in profit, by itself.  The IRS has to prioritize, and an auditor who pursues $0 gains is going to hear about their poor performance from a superior.

If the IRS took action, what would they allege?  Since it doesn't impact the amount of taxes owed, it wouldn't be a percentage penalty.

If the IRS took action and lost, is it possible a tax court could order the IRS to remove this question from form 1040?

Elle 8

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #54 on: February 05, 2020, 05:35:26 AM »
“At anytime during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

I think what bothers me, and maybe the OP, about this question, is that they're singling out this one type of asset. They're not asking about gold, fine art, rare stamps, real estate, or anything else that may cause taxes owed when sold, just virtual currency. I realize the reason for it is because it's become much more popular in the last few year, but it does seem to be 'picking on' people who deal in virtual currency.

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #55 on: February 05, 2020, 06:39:20 AM »
I'm so confused about the "become cucked by their government" concept. I'm supposed to be...mad?
You do realize that the United States is the only country in the world (besides Eritrea) that taxes its citizens' worldwide income, right? You don't see a problem with this?
« Last Edit: February 05, 2020, 06:59:00 AM by joer1212 »

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #56 on: February 05, 2020, 07:02:56 AM »
I think what bothers me, and maybe the OP, about this question, is that they're singling out this one type of asset. They're not asking about gold, fine art, rare stamps, real estate, or anything else that may cause taxes owed when sold, just virtual currency. I realize the reason for it is because it's become much more popular in the last few year, but it does seem to be 'picking on' people who deal in virtual currency.

Yes, but what bothers me most is the fact that the IRS is asking about my possessions to begin with. That's none of their business. Their job is to collect taxes due. So, how is what I own relevant to my 2019 tax obligation? Answer: it isn't. And, if the comments on this forum are representative of how the majority of Americans think, the IRS will soon feel free to start asking about your stamp collection too.

« Last Edit: February 05, 2020, 07:07:54 AM by joer1212 »

merula

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #57 on: February 05, 2020, 07:21:33 AM »
I'm so confused about the "become cucked by their government" concept. I'm supposed to be...mad?
You do realize that the United States is the only country in the world (besides Eritrea) that taxes its citizens' worldwide income, right? You don't see a problem with this?

So, a few things:
  • That claim, despite being oft repeated in certain internet circles, isn't true. https://en.wikipedia.org/wiki/International_taxation#Individuals has a great chart showing what income for whom is taxed where. Dozens of countries tax resident citizens' worldwide income. What the US, Eritrea, Hungary and Myanmar have in common is that they tax non-resident citizens' worldwide income. However, given the foreign earned income exclusion and foreign tax credit, functionally the US is equivalent to most other developed, non-tax-haven jurisdictions.
  • Even if it were true, I wouldn't have a problem with that particular tax law. I have a lot of complaints about the tax code, but that isn't one of them.
  • I don't see what any of this has to do with my wife sleeping with someone else.

oldmannickels

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #58 on: February 05, 2020, 07:32:16 AM »
I think what bothers me, and maybe the OP, about this question, is that they're singling out this one type of asset. They're not asking about gold, fine art, rare stamps, real estate, or anything else that may cause taxes owed when sold, just virtual currency. I realize the reason for it is because it's become much more popular in the last few year, but it does seem to be 'picking on' people who deal in virtual currency.

Yes, but what bothers me most is the fact that the IRS is asking about my possessions to begin with. That's none of their business. Their job is to collect taxes due. So, how is what I own relevant to my 2019 tax obligation? Answer: it isn't. And, if the comments on this forum are representative of how the majority of Americans think, the IRS will soon feel free to start asking about your stamp collection too.

The IRS been asking questions about your possessions for years, you've just answered no to those questions. You're just mad that they asked a question that impacts you.

Dee18

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #59 on: February 05, 2020, 07:44:24 AM »
Submitting a tax return with false information is a violation of 18 United States Code section 7206. This is a felony with a maximum penalty of 3 years in prison and a $100,000 fine.  This is a separate crime from failing to pay taxes. Checking no, when the correct answer is yes, is a violation of this code section. 

wbranch

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #60 on: February 05, 2020, 10:54:27 AM »
If you were exchanging cryptocurrencies in 2017 and 2018, the IRS already knows you have cryptocurrency. Each exchange is a taxable event, not just when you convert them to dollars.
It wasn't a taxable event in 2017. It was a like-kind exchange. The law making it a taxable event started on January 1, 2018, at which time I stopped trading and only purchased cryptocurrency.

Great, so you were reporting all of the exchanges on Form 8824 and the IRS knows about your cryptocurrency.

Cpa Cat

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #61 on: February 05, 2020, 11:23:04 AM »
If you were exchanging cryptocurrencies in 2017 and 2018, the IRS already knows you have cryptocurrency. Each exchange is a taxable event, not just when you convert them to dollars.
It wasn't a taxable event in 2017. It was a like-kind exchange. The law making it a taxable event started on January 1, 2018, at which time I stopped trading and only purchased cryptocurrency.

This is not a true statement from joer1212.


Prior to 2017, there was no official guidance on whether or not it could be a like-kind exchange and some tax professionals and Crypto-related blogs held the opinion that since the law was silent on the issue, then Crypto should qualify for like-kind exchanges.

There is nothing in the law that indicates that Crypto was ever 1031 property qualifying for like-kind exchanges. This was just an opinion that some people had. The IRS has been clear that it does not agree with this position. The issue has not been litigated (to my knowledge), however the statements from the IRS' counsel seems to indicate that they can and will litigate it as needed with regards to 2016/2017 audits.

Now that like-kind exchanges are limited to real-estate, the like-kind exchange question is a moot point. But the IRS is well aware that there is a compliance problem with Crypto.

The information about the number of people reporting Crypto and Coinbase's user numbers were from the IRS' lawsuit against Coinbase, in which they sued for Coinbase's records and won the right to receive records for individuals with over $20,000 in transactions. After that lawsuit, 56,000 US taxpayers voluntarily amended tax returns and an additional 10,000 were sent letters from the IRS. Obviously, these numbers are a far cry from the millions of users the IRS was alleging (but the IRS was originally trying to get data on all users, regardless of amounts), but they also clearly demonstrate a reporting problem.

Edited: Half my post disappeared mid-sentence. Weird!
« Last Edit: February 06, 2020, 06:47:21 AM by Cpa Cat »

dhc

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #62 on: February 05, 2020, 07:39:39 PM »
Submitting a tax return with false information is a violation of 18 United States Code section 7206. This is a felony with a maximum penalty of 3 years in prison and a $100,000 fine.  This is a separate crime from failing to pay taxes. Checking no, when the correct answer is yes, is a violation of this code section.


This. You keep asking if you can legally lie on the form. The answer is no. If you want to complain about it, that's your perogative, but complaining doesn't magically make something legal.


And I'm another investor who's totally in favor of IRS enforcing the tax code. I have plenty of complaints with the code itself, but that's up to Congress to fix, not the IRS. If I'm going to pay my taxes honestly, which I am, I want everyone else forced to do so as well.

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #63 on: February 05, 2020, 08:02:32 PM »
If you were exchanging cryptocurrencies in 2017 and 2018, the IRS already knows you have cryptocurrency. Each exchange is a taxable event, not just when you convert them to dollars.
It wasn't a taxable event in 2017. It was a like-kind exchange. The law making it a taxable event started on January 1, 2018, at which time I stopped trading and only purchased cryptocurrency.

Great, so you were reporting all of the exchanges on Form 8824 and the IRS knows about your cryptocurrency.
What are you talking about??

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #64 on: February 05, 2020, 08:07:27 PM »
The IRS been asking questions about your possessions for years, you've just answered no to those questions. You're just mad that they asked a question that impacts you.
Wrong. I've been outraged about FBAR for years, even though it didn't impact me in the least. Try again.

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #65 on: February 05, 2020, 08:26:37 PM »
I'm so confused about the "become cucked by their government" concept. I'm supposed to be...mad?
You do realize that the United States is the only country in the world (besides Eritrea) that taxes its citizens' worldwide income, right? You don't see a problem with this?

So, a few things:
  • That claim, despite being oft repeated in certain internet circles, isn't true. https://en.wikipedia.org/wiki/International_taxation#Individuals has a great chart showing what income for whom is taxed where. Dozens of countries tax resident citizens' worldwide income. What the US, Eritrea, Hungary and Myanmar have in common is that they tax non-resident citizens' worldwide income. However, given the foreign earned income exclusion and foreign tax credit, functionally the US is equivalent to most other developed, non-tax-haven jurisdictions.
  • Even if it were true, I wouldn't have a problem with that particular tax law. I have a lot of complaints about the tax code, but that isn't one of them.
  • I don't see what any of this has to do with my wife sleeping with someone else.
Oh, so the number of countries that tax worldwide income based on citizenship has now grown? Until recently, it was limited to the U.S. and Eritrea (at least for any sustained period):

https://m.taxesforexpats.com/expat-tax-advice/Citizenship-Based-Taxation-International-Comparison.html

https://www.tax-news.com/articles/US_Citizenship_Based_Taxation_Unique_or_Outrageous____571149.html

The foreign income exclusion is limited to $107,600 income.

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #66 on: February 05, 2020, 08:28:57 PM »
Submitting a tax return with false information is a violation of 18 United States Code section 7206. This is a felony with a maximum penalty of 3 years in prison and a $100,000 fine.  This is a separate crime from failing to pay taxes. Checking no, when the correct answer is yes, is a violation of this code section.
Thanks. This is actually what I wanted to know.

Grafter

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #67 on: February 05, 2020, 08:53:36 PM »
If you were exchanging cryptocurrencies in 2017 and 2018, the IRS already knows you have cryptocurrency. Each exchange is a taxable event, not just when you convert them to dollars.
It wasn't a taxable event in 2017. It was a like-kind exchange. The law making it a taxable event started on January 1, 2018, at which time I stopped trading and only purchased cryptocurrency.

Great, so you were reporting all of the exchanges on Form 8824 and the IRS knows about your cryptocurrency.
What are you talking about??

Like kind exchanges are reported on form 8824.  So if you didn't file it for each exchange (which as the other poster pointed out, is an incorrect tax positions) you didn't properly report it as an exchange, and therefore your return is incorrect/ incomplete for your stated position.

MustacheAndaHalf

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #68 on: February 05, 2020, 11:12:06 PM »
...
The information about the number of people reporting Crypto and Coinbase's user numbers were from the IRS' lawsuit against Coinbase, in which they sued for Coinbase's records and won the right to receive records for individuals with over $20,000 in transactions. After that lawsuit, 56,000 US taxpayers voluntarily amended tax returns and an additional 10,000 were sent letters from the IRS. Obviously, these numbers are a far cry from the millions of users the IRS was alleging (but the IRS was originally trying to get data on all users, regardless of amounts), but they also clearly demonstrate a reporting problem.
Thanks, that helped me look up the news articles covering the IRS vs Coinbase case.  I also found out Coinbase is required to report $20,000 in transactions on form 1099-K.  So the IRS could both see if Coinbase was in compliance, and if the individual taxpayers were reporting their 1099-K transactions correctly.  I guess the quick takeaway is that someone with $20,000 in transactions is already being reported to the IRS, and is on the IRS radar.
https://www.irs.gov/businesses/understanding-your-form-1099-k

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #69 on: February 06, 2020, 06:53:49 AM »
...
The information about the number of people reporting Crypto and Coinbase's user numbers were from the IRS' lawsuit against Coinbase, in which they sued for Coinbase's records and won the right to receive records for individuals with over $20,000 in transactions. After that lawsuit, 56,000 US taxpayers voluntarily amended tax returns and an additional 10,000 were sent letters from the IRS. Obviously, these numbers are a far cry from the millions of users the IRS was alleging (but the IRS was originally trying to get data on all users, regardless of amounts), but they also clearly demonstrate a reporting problem.
Thanks, that helped me look up the news articles covering the IRS vs Coinbase case.  I also found out Coinbase is required to report $20,000 in transactions on form 1099-K.  So the IRS could both see if Coinbase was in compliance, and if the individual taxpayers were reporting their 1099-K transactions correctly.  I guess the quick takeaway is that someone with $20,000 in transactions is already being reported to the IRS, and is on the IRS radar.
https://www.irs.gov/businesses/understanding-your-form-1099-k
I have not received a 1099 from Coinbase, is it safe to assume that they have not reported my activity to the IRS?
« Last Edit: February 06, 2020, 09:17:05 AM by joer1212 »

px4shooter

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #70 on: February 06, 2020, 07:27:30 PM »
I have not received a 1099 from Coinbase, is it safe to assume that they have not reported my activity to the IRS?

Since they have the KYC (know your customer) requirements in place, hiding on Coinbase is long gone. There are other exchanges that still refuse to comply with the US requirements and have relocated.

Here is Coinbase's reporting. 20k for most states, but read the list. https://help.coinbase.com/en/pro/taxes-reports-and-financial-services/taxes/1099-k-tax-forms-faq-for-coinbase-pro-prime-merchant.html.html

If your bank or Coinbase is doing any of the Currency Transaction Reports for your transactions, there will be a record. Only time I have seen the CTRs used for tax evasion was for a criminal case. Never heard of them used in an audit.

joer1212

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Re: Disturbing Question on 2019 IRS Tax Form
« Reply #71 on: February 06, 2020, 08:31:04 PM »
I have not received a 1099 from Coinbase, is it safe to assume that they have not reported my activity to the IRS?

Since they have the KYC (know your customer) requirements in place, hiding on Coinbase is long gone. There are other exchanges that still refuse to comply with the US requirements and have relocated.

Here is Coinbase's reporting. 20k for most states, but read the list. https://help.coinbase.com/en/pro/taxes-reports-and-financial-services/taxes/1099-k-tax-forms-faq-for-coinbase-pro-prime-merchant.html.html

If your bank or Coinbase is doing any of the Currency Transaction Reports for your transactions, there will be a record. Only time I have seen the CTRs used for tax evasion was for a criminal case. Never heard of them used in an audit.
Thanks for this detailed info. The good thing is, I have not done any trading on Coinbase, only purchasing. So, no taxable events there. But, I have sent cryptocurrencies from Coinbase to another U.S. exchange to trade, and they have my personal info.