As we’ve discussed, some cryptocurrency traders have only recently learned that taxes are a thing. To make matters worse, some traders who made a lot of money wound up fully back in the market only to find themselves holding positions that now have huge paper losses. This situation is precisely the worst possible one to be in: Owing taxes on big trading gains, but stuck with little to no cash to pay the tax due because they’re now holding onto positions with big paper losses. Should we feel sorry for these people? No. No, we should not.
And because many of these crypto traders are amoral Objectivist shitbags, some of them are kicking around idiotic ideas like just not reporting their trading activity. This despite the fact that Coinbase, one of the largest digital currency exchanges, was ordered to turn over its customers’ account information to the IRS last year.
I think all that may explain this gentle reminder offered by the IRS today:
The Internal Revenue Service today reminded taxpayers that income from virtual currency transactions is reportable on their income tax returns.
Virtual currency transactions are taxable by law just like transactions in any other property. The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency.
Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.
Then, for the Bitcoin Bros out there feeling really bulletproof, there’s another outcome to ponder:
In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.
Look, if you think you earned those big crypto gains and you deserve to keep them, by all means do so. Flout the law and knowingly file a bogus tax return if that’s what you think you should do. Just know that that is a dumb decision and if you make it, I seriously hope you wind up in jail. The end.