Have you heard about the Virtual Currency Trap?

The first question on the 2020 1040 was “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” A lot of people are tempted to answer No when they know they answer Yes. If, for no other reason, they consider this to be none of the government’s business. Particularly since virtual currency is thought to be a highly encrypted secret.

How the Trap Works

Here is the trap. The IRS has issued John Doe Summons for information about American investors to companies like Coinbase. These companies make it easy for non-tech people to invest and use virtual currencies. The IRS summons allowed them to get the names of people who have accounts with them. How well the IRS can track individual transactions is a question, but they certainly have enough information to catch a lot of people who answered the virtual question the wrong way.

This is a significant trap. The criminal division is actively looking through their records of Form 433s filed to find people who answered no of the form. Form 433 is used to report financial information for people looking for a payment plan, offer-in-compromise, or trying to get the IRS to give them some room before making payments. People who signed these forms with the wrong answer are setting themselves up for criminal prosecution for perjury.

How do you want to bet?

Here is one thought to keep in mind. Even if you think the IRS cannot get these records today, what about a year from now, or two, or three years? Fraud does not have a statute of limitations and I would certainly not like to bet against the government’s abilities to get hold of these records at some time in the future.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

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