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Bitcoin: Latest target of IRS John Doe Summons

Why does the IRS use a John Doe Summons to get tax-related information? This type of request is used by the Service when it does not know the identity of a taxpayer.

The IRS successfully used a John Doe Summons against UBS to obtain the names of account holders. In that case, collections topped $10 billion in taxes and fines against those who had not disclosed their offshore bank accounts.

Coinbase, Inc. Summons

One of the most recent recipients of this type of summons is a digital currency transaction hub. The IRS wants to be able to cross reference transaction data with tax returns to ensure that the proper taxes have been paid.

Forbes reports on a challenge to the summons that has been filed and is proceeding through the courts. It could possibly limit the scope of the disclosure or drag out how long it takes the Service to obtain the information. However, the IRS usually gets what it asks for through these types of summons.

Easy to make mistakes when reporting sales

Bitcoin is treated by the IRS as property rather than currency. This means a sale of Bitcoin could trigger a capital gain tax bill. Conversely, a loss of up to $3,000 could be claimed in one year. Larger losses can generally be carried forward.

Because the value of Bitcoin has varied widely over the last year, it can be confusing to know how to report it on tax returns. Getting it wrong could leave you on the defense in an IRS tax collection case.

Matching transactions against tax returns will not be difficult. For those who have done well on Bitcoin, it is time to speak with a tax attorney and make sure gains and losses have properly been accounted for on past tax returns. Making a corrective filing prior to an IRS inquiry can also limit the consequences.

 

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