I can't believe this hasn't popped up here since it was shared on Reddit back in February.
The IRS is sending out these crypto tax AUDIT letters and they're pretty intense check out the original Reddit discussion.
A few folks in that thread are saying the letter might be a scam since it has two different fonts and some other weird stuff. What’s everyone’s take on this?
I was going to call bullshit because of its reference to airdrops but little did I know that the IRS already published a ruling last year [1]. Now it seems a bit more plausible to me. Nonetheless it still seems rather fishy, as I'd expect more people to report receiving similarily detailed IRS audits. If true though, this redditor said it best:
[1] https://www.irs.gov/pub/irs-drop/rr-19-24.pdf
it does feel suspicious for that reason. i've gotten a couple letters from the IRS in my day and it was always 100% times new roman---none of that arial font.
the taxpayer burden according to that letter is brutal, but i would expect that of any IRS audit tbh.
same. this is in the "possible but likely bullshit" category until we see more corroboration.
I saw that circulated when it was posted but I have not personally seen any clients hit with an IRS crypto audit. The IRS recently put out an RFP for assistance in calculating basis so I think they are a ways away from mass audits of individual taxpayers. The audits I have seen in this space were entities. Based on discussions with IRS and Treasury officials this list would seem overly detailed for their capabilities and current enforcement targets.
Is this the RFP you're mentioning? Seems to refer to only 22,000 accounts from 2017.
I'm not surprised there's been only one report of this letter so far, for a few reasons:
1. IRS has only recently started auditing individuals who filed crypto gains. That checkbox has been there for the 2019 returns.
2. It's Covid, and they're operating at lower capacity.
3. How many crypto earners reported their crypto? I remember watching an interview with the COO of Cointracking,info, who said that only 1% had reported their crypto gains. (Can't find the video, not sure what year, I assume 2019?)
3. Out of the people who filed crypto earnings, how many get audited? 1%?
4. Out of those, how many post on reddit, or bother to create an account? 1%? 10%?
5. Out of those, how many go through the trouble of posting the letter? I think the overall estimate for #4 and #5 is reasonable at 1% again
So 1% of 1% of 1% reported crypto taxes, got audited, and posted. That computes to 1 million to payers who filed crypto gains. More than plausible.
I wonder why someone would come up with a fake crypto audit letter going into great plausible detail about what's requested, but then make a silly mistake and not just use one font throughout.
are you a CPA? do you have a considerable number of clients investing in crypto?
re "they are a ways away from mass audits" i tend to agree. the document published by CryptoTrader.Tax indicates they are still way behind the curve, and still need to figure out how to make crypto audits even remotely affordable.
the 2019 tax return check box and mass letter campaigns were probably just scare tactics intended to deter noncompliance in the meantime.
Yes. Cryptotrader.tax released that because they did not have the capabilities to perform the requested calculations. There is only one software provider out that that can meet those specifications. My accounting firm received the same RFP from the IRS but we declined due to potential conflicts of interest, and the fact that we are not a software company so it would be too labor intensive. It was foolish to release that letter as they burnt that connection with the IRS. I regularly speak with the IRS officials that sent that out and as a professional courtesy do not discuss those private conversations, which i find very valuable.
The sample language in the RFP is just an example. The IRS intends to look at all open tax years.
I think it is more likely that this is a field agent of the IRS that stumbled upon a crypto audit. This does not look like a standardized initial document request approved by the national office.
I'm a tax attorney at one of the top, non-Big 4, accounting firms and lead the digital asset tax practice. We represent the whole spectrum of the industry from investors, traders, miners, tokens, exchanges, etc.
Would this be corroborating evidence?
Zietzke v. United States, January 2020
The IRS apparently used Chainalysis to identify where Zeitke moved bitcoins:
I can't seem to find the summons that the IRS sent to Coinbase, or Revenue Agent Snow's declaration. Are those attached or linked somewhere? Though what can be seen in Casetext alone is already very close to the same type of information as in that Reddit letter.
I don't think this kind of requirement is true coming from the IRS. If you think about there requirements you will feel like earning or starting your own business will be easier at this point with all the requirements you need to dig in for 2017 which for me will be impossible now if I'm a citizen in the US. I mean screenshots, text messages, tweets? Are this things even real? Since I don't think the IRS will scroll down and search even non-money related things all for documentations and requirements for your taxes. With this type of requirement it might be discouraging crypto hodlers more on filing their true crypto earnings rather than showing everything as the requirements will be too much for them just to file a report.
what does it corroborate exactly? they're requesting all account info/history linked to his identity from coinbase, right? to confirm whether his accounting is legitimate and whether he is hiding other accounts.
i guess that still doesn't tell us exactly what an audit entails on the taxpayer side.
here is one important lesson---don't report a shitload of bitcoin capital gains, then later amend your tax return to remove those capital gains and claim a refund. it's gonna look fishy as hell and land you on the IRS's radar. i dunno what this guy was thinking:
I agree that the petitioner was a bit of an idiot. I mean if you ask for a refund **from crypto gains** then you refuse to provide documentation, what do you expect.
Question is, what does a regular crypto audit from the IRS look like?