Does Using Bitcoins Increase Your Odds of Being Audited?
Provided by HG.org
With the Internal Revenue Service attempting to wage war on Bitcoin companies such as Coinbase, it is possible that these agencies of the government may attempt to use the client and customer base to audit and progress to criminal charges against some. While this is a possibility, it does not mean anyone with Bitcoin funds run the risk of an audit.
Bitcoin is an online monetary trading transaction. It is not quantified as true money in the open markets, but it is payment for services or certain interactions performed for others online. The transfer of real money for these electronic counterparts is in the extreme when compared to other types of payment and services for networked transactions. While the IRS is only starting to understand these items in since the early 2000s, many forms of legislation may permit these government agencies to restrict actions and transfers. By increasing what the IRS may perform, an audit is possible by just possessing Bitcoins.
The Possible Audit
Having Bitcoin is either possible through performing services of some sort through electronic transactions, or through the internet or by investing in the companies that provide these forms of networked monies. While many that work must pay taxes, the same is possible for having Bitcoins. Since these may constitute as payment for transactions, the payment itself may lead to the need to pay taxes or for a company to have all interactions audited by the IRS. To ensure such interactions between clients, customers and others are legal and valid, this agency will need to assess and examine every paper trail the company or individual has.
Another reason for government agencies to become involved in online currency companies such as Coinbase is to acquire the customer and client details. These online entities refuse to cooperate and give out this information. However, if the IRS is able to obtain these details, it does not necessarily mean that an audit will occur immediately. Sorting through the data will take time, and then departments within the government have restrictions on what they may perform based on the information available. Just sending or receiving Bitcoin does not automatically mean that the person owes any taxes to the IRS.
Exchanges of Bitcoin currency does not even mean that the individual or group has performed any actions related to currency such as work or payment for Bitcoins. Understanding what is taxable and what actions have a connection to work or activity that a person should acquire payment for is difficult. However, it is important for anyone with Bitcoin in possession to prepare for the worst case. This may lead to the necessity of contacting a lawyer to protect assets and prevent undue taxation. Legal representation may need to ensure the safety of the client and argue against additional tax payments just for owning Bitcoins.
Legal Changes with Bitcoin
Through new laws with the IRS, it is possible that the owners of these online currencies could face undue taxation. The exchange of Bitcoin to another online currency may no longer constitute like exchange. Then, any trades in this manner may incur taxable fees. This could lead to an audit if the IRS becomes involved or is aware of the client with the Bitcoins included in the transaction. For any discovered violations to tax laws, the person may face an audit and severe penalties. It is important to keep up to date with these changes and how they affect the individual citizen.
Online Transactions with Bitcoin
Many that have Bitcoins are either investors or those that perform services in some manner. These are similar to work in exchange for an online currency. This type of transaction is usually taxable to a degree, even if the currency has no real-world market exchange. The sale of a Bitcoin could constitute a taxable interaction that requires taxes paid to the IRS. It is important for each person to understand what this means and how payment should transfer to the appropriate government agency when necessary. To keep an audit from ruining business, the company or person may need to hire a lawyer to help out.
Legal Help in Bitcoin Audits
Legal help along with online companies keeping client and customer details private may mitigate the possibility of the IRS attempting to audit a person or business. Through representation, the individual may ensure his or her rights are safe and protect the online company that possesses or exchanges the Bitcoin.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.