The US tax authority is not very efficient in tracking who generates profits through cryptocurrency, Wendy Walker explains
The taxation of profits generated through cryptocurrency is still an uncertain area. It seems that even the Internal Revenue Service (IRS) of the United States does not know how to proceed in this area: this was stated by Wendy Walker, Solution Principal at the tax compliance firm Sovos.
“In the classic tax system, the IRS uses Reporting 1099,” Walker explained during an interview with Cointelegraph. “So 1099, W2… these are Bitcoin Lifestyle scam the main tools that the IRS uses to enforce tax compliance. But when people don’t declare their cryptocurrency, the IRS still doesn’t know how to proceed.
In 2019, 10,000 people working with cryptocurrencies received warning letters from the IRS informing them that they owed the government more money or received fines. Recently, the tax authority added a new application at the beginning of Form 1040, which asks the citizen whether he or she has been operating with cryptocurrency during the current fiscal year.
“Now they are retrieving all this information, which they will have to sift through,” explained Walker. “To handle this incredible amount of data, the IRS issued a Request for Proposal (RFP) in May 2020: to hire digital asset experts who can navigate through this pile of information.
“The point is that they are approaching the problem in the most difficult way. This new question in Form 1040, the proposal to hire people to review the information, the idea of sending letters to taxpayers… they are trying various systems to see what is actually feasible.
This difficulty stems from the fact that the US tax system is outdated and therefore incapable of effectively interfacing with technological innovations.