At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?
- 2020â€™s federal income tax form 1040 was redesigned to ensure all taxpayers must answer a crypto-related question.
- Experts believe this question will be used by the IRS to catch tax evaders that untruthfully answer â€œNoâ€ on the form.
Starting this year, the U.S. Internal Revenue Service (IRS) is increasing priority on cryptocurrency taxation. The personal federal income tax form 1040 will now include a mandatory â€œYes/Noâ€ question related to taxpayersâ€™ use of virtual currencies.
This question was also a part of the form in 2019. However, it was positioned to enable some people to avoid having to fill it out.
According to the Wall Street Journal, this newer question is designed to trap crypto tax evaders and help the IRS win court cases effectively.
The Internal Revenue Bulletin: 2014-16 is considered the primary guidance on the taxation of virtual currencies. Describing taxable events in the bulletin, the IRS said:
â€œIn general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.â€
This tactic had proven effective in the past when the IRS added a question regarding offshore bank accounts, which resulted in the recovery of taxes worth over $12 billion.
Internal revenue organizations in the UK and Russia are increasingly active in their pursuit of crypto tax evaders. The Financial Action Task Force (FATF) is also ramping up enforcement of the travel rule in their fight against money laundering.
If successful, the FATFâ€™s efforts will help revenue services worldwide collectÂ taxes on cryptocurrency.