Digital currency taxation confuses US taxman

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The Internal Revenue Service (IRS) is recruiting digital currency tax professionals to help them audit tax returns on digital currency earnings.

On May 12th, CryptoTrader.Tax, the website that easily allows the filing of digital currency taxes, received a solicitation email from the IRS that said in part:

“The Internal Revenue Service is engaging outside contractors to assist our Revenue Agents in calculating taxpayers’ gains or losses as a result of their transactions involving virtual currency. We are placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract. Attached is a sample Statement of Work describing the types of services we are looking for. I wanted to make you aware of our efforts in case your company has any interest in pursuing this type of work.”

The IRS is looking to bring contractors onto their team that can help them verify whether a digital currency owner’s tax return correctly reports their gains and losses.

For many individuals and accountants, reporting digital currency-related purchases and sales is a new concept and can be challenging. Unfortunately, some individuals choose not to report their digital currency purchases and sales at all.

Over the past few years, the IRS has sent letters to the digital currency owners that they believe have not accurately reported their digital currency-related activities. That being said, the IRS is looking to contract third-party digital currency tax professionals to help them audit and guarantee that digital currency owners are accurately reporting their digital currency purchases and sales.

The contractor’s statement of work

 The IRS included a statement of work (SoW) in their solicitation email to Cryptotrader.tax. The SoW defines the scope of work that a digital currency-tax professional can expect if they accept the IRS contract.

The SoW says that the desired outcome of the contract would be that “the contractor will ingest all data provided by the IRS as well as any attendant or related data the contractor collects through their system to produce a report. [The] desired outcome [is] a report computing the gains or losses for each year(s) at issue and a summary explanation of the methodology used to produce the report. The contractor will also report on instances where the taxpayers data is inconsistent from what would be expected from normal accounting practices.”

The IRS is hoping that through the combination of the data they provide and the data in possession of the digital currency tax professional, a report will be produced that accurately assesses the digital currency holders gains and losses for the tax year(s). If the report produced by the tax professional does not match the data on the digital currency owners’ tax return, you can expect the IRS to hunt for the funds they are owed. 

 Will tax professional take the IRS contract?

It is not clear how many other digital currency tax professionals have received the IRS’s email, but it will be interesting to see how many will pursue the contract the IRS has extended. However, CryptoTrader.Tax says that they will not be accepting the IRS’s offer. 

“The CryptoTrader.Tax team will not be pursuing this contract. Our full focus is on serving our customers and making the cryptocurrency tax reporting process as seamless as possible,” according to CryptoTrader.Tax.