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Tax evasion allegations could come up in relation to a range of different things. This includes certain uses of virtual currencies (like bitcoin). There are concerns that certain aspects of virtual currencies, like the fact that transactions involving this new type of currency tend to involve anonymous parties, could create avenues for illegal tax avoidance. One wonders if a recent report will end up leading to big changes in Internal Revenue Service enforcement and compliance efforts regarding virtual currencies.
The report was by the Treasury Inspector General for Tax Administration. The report leveled several criticisms regarding how the IRS has thus far proceeded when it comes to virtual currencies, including that:
- It lacks a comprehensive strategy for handling issues regarding these currencies.
- There aren’t guidelines in place regarding investigations/audits involving such currencies.
- There are gaps in the reporting requirements for such currencies.
- Actions have not yet been taken in response to comments that were made regarding a 2014 guidance the IRS issued on these currencies.
In the report, TIGTA argues that these things could be creating significant tax vulnerabilities. Several suggestions were made to the IRS in the report in connection to these criticisms. The IRS purportedly has expressed agreement with the suggestions. It will be interesting to see what sorts of adjustments in IRS practices regarding virtual currencies do end up being made as a result of the report.
What the IRS’s enforcement and compliance practices are on such currencies can have big implications for taxpayers. For one, it can impact what sorts of conduct related to virtual currencies would be particularly likely to cause a taxpayer to face IRS scrutiny or possible allegations of tax evasion.
Being accused of trying to illegally avoid taxes can have massive consequences for a taxpayer. In some cases, it could lead to them facing criminal charges of tax evasion. So, when facing such allegations in relation to a virtual currency transaction, a taxpayer may want to quickly contact a skilled tax lawyer to get information on their options for defending themselves against the accusations.
Source: The Hill, “Watchdog: IRS needs strategy on virtual currencies,” Naomi Jagoda, Nov. 8, 2016