Crypto

CPAs to Clients: The IRS is Coming for Cryptocurrency

Published

1 year ago

August 16, 2023

Press Room

CPAs to Clients: The IRS is Coming for Cryptocurrency

By Tim Grant, Pittsburgh Post-Gazette (TNS)

Only a handful of Connolly Steel & Co. clients were dabbling in cryptocurrencies five years ago.

But the number of clients buying and selling cryptocurrencies—digital money that can be used in online transactions and theoretically cannot be governed by any centralized authority, such as a government—has grown to a point where the Avalon, PA-based accounting firm had to invest in software that keeps track of cryptocurrency trades for tax purposes.

“Most of our clients are dabbling in it through platforms like Robinhood Crypto,” said Elizabeth “Li” Connolly, a firm partner. “One client started actually mining cryptocurrency and bought special equipment to do so.”

Crypto mining operations—the process of creating new digital coins—have unique tax issues because the rules aren’t clear if miners are taxed as cryptocurrency investors or business owners.

“There’s different tax implications depending on the answer to that,” Ms. Connolly said.

This much is clear: As more people become interested in buying and selling digital assets like Bitcoin and Ethereum, the IRS is ramping up its efforts to collect taxes owed on digital transactions.

This can be a challenge—a big part of crypto’s appeal is that it’s decentralized, and hard for governments to track and tax.

But the digital currency is now in the crosshairs of agencies like the IRS, who are rolling out new strategies to make sure people involved in crypto are paying what they should.

For federal tax purposes, the IRS treats digital assets as “property,” and therefore transactions involving virtual currency are subject to the same general tax rules that apply to property transactions involving stock or real estate. The federal agency launched Operation Hidden Treasure in 2021, for example, to root out taxpayers who fail to report income from cryptocurrency transactions on their federal tax returns.

Also, the Inflation Reduction Act, enacted in 2022, allocated $80 billion to the IRS, with much of it designated for enforcement activities, including cryptocurrency monitoring.

And that’s just the beginning.

The IRS’s strategic operating plan for 2023 through 2031 lays out the agency’s intention to ramp up enforcement action related to digital assets, according to Green Tree, PA-based accounting firm H2R CPA.

“The IRS is looking for unreported assets,” said Lucas Rihely, a tax partner at H2R CPA. “That’s really what the purpose of all this is.”

Anonymous form of digital money transfers

You may have noticed a new line on your individual federal income tax return in recent years. The 2022 version asks taxpayers if they received any “digital assets” during the course of the year for payment or otherwise sold, exchanged or gifted any digital assets.

“In the first iteration of those questions, only a certain subset of taxpayers had to answer them, depending on whether they already had investment activity on their return,” Mr. Rihely said. “Then, starting with the 2020 forms, every taxpayer who filed a Form 1040 needed to answer the question of whether they had received or sold crypto during the year.”

Mr. Rihely said the terminology used by the IRS to ask the question also has evolved during the course of the years that it has asked the question.

“It started with ‘virtual currency’ being how crypto was referenced on the tax returns,” he said.

With the advent of NFTs, the federal agency included them under the definition of property for tax purposes. NFTs also are included in the IRS question on tax forms related to digital assets.

NFTs are non-fungible tokens—which can represent digital or real-world assets like artwork and real estate on the blockchain. However, cryptocurrencies like Bitcoin have no individuality and can be replaced by tokens of the same kind.

Bitcoin and other cryptocurrencies essentially are an anonymous form of digital money transfer.

“From a use standpoint, cryptocurrency is a dollar bill,” Mr. Rihely said. “When two people do a transaction with cash they have no other connection to each other after a transaction is done.

“There are myriad other ways that people look at crypto from a philosophical or an investment standpoint,” he said. “But at its core its a way to anonymously pay someone and not have bank or credit card information tied to it. It’s just an anonymous way to pay someone digitally that you would otherwise pay cash.”

The IRS—and the courts—send a clear message

Stricter reporting requirements for crypto brokers will make it easier for the IRS to take a closer look at digital asset transactions.

The Infrastructure Investment and Jobs Act (IIJA), enacted in late 2021, created additional new reporting requirements for digital transactions that will provide the IRS with more information to keep an eye on taxpayers who engage in virtual currency transactions.

The IIJA expanded the definition of brokers that are required to report their customers’ gains and losses on the sale of securities during the tax year—which includes a description of each sale, the cost basis, the acquisition and sale dates, prices, and the resulting loss or gain. That means operators of trading platforms for digital assets, such as cryptocurrency exchanges, are subject to the same reporting requirements as traditional securities brokers.

The effective date of the new reporting requirements hasn’t been announced in light of the IRS not yet issuing final regulations with instructions.

The IIJA also amends existing anti-money laundering laws to treat digital assets as cash. Since the start of 2023, businesses are required to report to the IRS when they receive more than $10,000 in digital assets in one transaction or multiple related transactions.

Cryptocurrency transactions are meant to be harder—if not impossible—to trace.

But the IRS wields a powerful tool to uncover digital assets.

In a court case decided in May, the IRS issued a “John Doe” summons to obtain the cryptocurrency account information of a Coinbase customer—James Harper.

Mr. Harper alleged that he declared his Bitcoin transactions on his 2013 and 2014 tax returns and that he declared all “appropriate income from bitcoin payments,” including capital gains tax.

Coinbase didn’t comply with an IRS summons to produce the account information and Mr. Harper argued that the government request was unconstitutional.

But a U.S. District Court judge disagreed and ruled that the IRS’s actions were “all squarely within its powers to pursue unpaid taxes.”

With that decision—and other recent steps by the IRS—the message became clear:

The IRS is coming for crypto.

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Crypto

Delta police targeting cryptocurrency scams

Published

4 hours ago

January 15, 2025

Press Room

Delta police targeting cryptocurrency scams

DPD and blockchain analytics company Chainalysis co-hosted other law enforcement agencies and cryptocurrency exchanges for ‘Operation DeCloak’

A cryptocurrency fraud workshop co-hosted by the Delta Police Department last fall identified over 1,100 victims worldwide, including a ‘significant number’ in Canada.

On Sept. 16 and 17, 2024, the DPD and blockchain analytics company Chainalysis hosted “Operation DeCloak,” bringing together representatives from law enforcement agencies including the RCMP, Victoria Police Department, Vancouver Police Department, the BC Securities Commission, the BC Prosecution Service and the BC Financial Services Authority, as well as key stakeholders from cryptocurrency exchanges such as Shakepay and others.

The initiative was a localized “sprint” of Chainalysis’ “Operation Spincaster,” a series of public-private collaborations designed to disrupt and prevent cryptocurrency scams. Spincaster itself spun out from “Operation Disruption,” a collaboration between Chainalysis and the Calgary Police Service in March 2024.

“Leveraging the transparency of the blockchain, Chainalysis proactively identified thousands of compromised wallets. This actionable intelligence formed the basis of a series of operational sprints across six countries (U.S., U.K., Canada, Spain, Netherlands and Australia) with over 100 attendees, including 12 public sector agencies and 17 crypto exchanges,” the company said in a press release.

“Over 7,000 leads were disseminated during these sprints, relating to approximately US$162 million of losses. These leads were used to close accounts, seize funds and build intelligence to prevent future scams.”

During last fall’s Operation DeCloak, Chainalysis led training sessions in investigating leads, tracing stolen funds and identifying compromised wallets using the company’s proprietary “Crypto Investigations Solution.”

According to a DPD press release, 240 crypto addresses were closely examined, revealing an estimated collective loss of C$35 million.

SEE ALSO: Court rejects environmental challenge to massive Delta port expansion

The event also promoted proactive policing and disruption strategies aimed at combating fraud, with particular emphasis on a growing tactic known as “approval phishing” used by romance and investment scammers targeting cryptocurrency transactions.

The method involves scammers gaining their victim’s trust by promoting false investment opportunities with the promise of high returns, thereby convincing victims to unknowingly approve malicious blockchain transactions.

The initial transaction gives the scammer access to tokens in the victim’s digital wallet without the victim’s knowledge, resulting in unauthorized withdrawals.

Police say scammers typically connect with their victims through social media, or via apps or pop-up ads.

During Operation DeCloak, police say immediate steps were taken to notify identified victims of these scams.

“With the co-operation of the exchange companies, affected individuals were promptly contacted with the goal of preventing further harm,” the DPD said in its press release.

Since the workshop, the department has successfully deployed the techniques learned through Operation DeCloak.

“The technique was applied to a previous investigation which identified stolen cryptocurrency funds in a blacklisted address containing US$1.2 million. This address was in the process of being seized by an overseas police agency,” the department said.

Using the DeCloak techniques, the DPD’s Cybercrime Unit has identified an additional 70 transactions worth US$800,000 sent from Canadian exchanges. Investigators are identifying those victims and seizing the funds from the blacklisted address so they can be returned.

“This collaboration with Chainalysis and cryptocurrency exchanges is a testament to the DPD’s focus on innovation and commitment to community safety and well-being.”

SEE ALSO: Conservative candidate files court petition over Surrey ‘voting irregularities’

SEE ALSO: Good Samaritan saves 3 people in fiery single-car crash in Surrey

Crypto

Coinbase Investigates ‘Delayed Sends’ for XRP on Its Platform | PYMNTS.com

Published

13 hours ago

January 15, 2025

Press Room

Coinbase Investigates ‘Delayed Sends’ for XRP on Its Platform | PYMNTS.com

Cryptocurrency exchange Coinbase said Tuesday (Jan. 14) that it is investigating a problem with delayed sends of Ripple (XRP) on its platform.

“We are aware that some users may be experiencing delayed sends for Ripple (XRP),” Coinbase said in an incident report on its status page. “Buys, Sells and Fiat withdrawals/deposits are not affected. We are investigating this issue and will provide an update shortly.”

In an earlier, separate report on its status page, Coinbase said some users experienced delayed sends and receives for Stellar (XLM) on Friday (Jan. 10). That incident was resolved within 90 minutes.

On Thursday (Jan. 9), some users experienced latency or degraded performance with buys, sells, sends, Coinbase Onramp and Advanced Trade. That issue was resolved within two hours, according to the page.

In other, separate news about the company, it was reported Thursday (Jan. 9) that Coinbase told customers that it may have to share data demanded by the Commodity Futures Trading Commission (CFTC).

The regulator sent a subpoena to the firm that seeks information about Coinbase customers’ interactions with prediction market firm Polymarket, and Coinbase emailed some customers saying it may have to share that data with the CFTC.

“When we receive requests for information from a government, each request is carefully reviewed by a team of trained experts using established procedures to determine its legal sufficiency,” a Coinbase spokesperson told CoinDesk.

On Dec. 9, cryptocurrency payments solution firm Triple-A announced an integration with Coinbase that it said it designed to let Coinbase users make payments to select merchants in the Triple-A network.

“Triple-A’s integration with Coinbase Commerce will empower merchants to offer a Coinbase-specific payment option, enhancing the convenience for Coinbase users and allowing Coinbase to connect with a wider network of merchants, to drive the broader adoption of cryptocurrency payments,” the company said in a press release.

Coinbase upgraded its Coinbase One subscription program and launched a new tier called Coinbase One Premium on Dec. 4, saying that with these new offerings, “Coinbase One now truly benefits all types of traders.”

Coinbase One membership has reached 600,000 across 42 countries, the company added.

Crypto

Credissential Inc. Adopts Cryptocurrency Policy, Plans XRP and XLM Purchases – TipRanks.com

Published

20 hours ago

January 14, 2025

Press Room

Credissential Inc. Adopts Cryptocurrency Policy, Plans XRP and XLM Purchases – TipRanks.com

Stay Ahead of the Market:

An update from Axiom Capital Advisors, Inc. ( (TSE:WHIP) ) is now available.

Credissential Inc. announced a new Cryptocurrency Acquisition Policy aimed at enhancing shareholder value by purchasing digital assets like XRP and XLM. This move aligns with the company’s cryptocurrency initiatives and allows investors exposure to the growing digital asset market. The policy is also seen as a strategy to navigate inflationary pressures while diversifying the company’s treasury holdings, indicating a proactive approach to adapting to market trends and delivering long-term shareholder value.

More about Axiom Capital Advisors, Inc.

Credissential Inc. is a vertically integrated AI software development company focusing on advancing financial technology solutions. The company is committed to developing innovative products such as Antenna, a payment platform enhanced with AI and quantum encryption technologies, and DealerFlow, an AI-driven dealer management system designed to streamline operations and enhance efficiency.

YTD Price Performance: -6.45%

Average Trading Volume: 298,973

Technical Sentiment Consensus Rating: Buy

Current Market Cap: C$6.17M

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