IRS to Revise Form 1040 to Make it Harder for Traders to Escape Crypto Tax Obligation
The Internal Revenue Service is planning to change the 2020 tax form and make sure all taxpayers report about their cryptocurrency transactions.
The standard 1040 form will be altered by adding the following questions on the front page:
At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency? And the taxpayer is required to check the box “Yes” or “No.”
“This placement is unprecedented and will make it easier for the IRS to win cases against taxpayers who check ‘No’ when they should check ‘Yes,’” says Ed Zollars, a CPA with Kaplan Financial Education.
The Wall Street Journal first reported the adjustment on Friday, noting that the question was previously, in 2019, in a spot that not all taxpayers had to fill out. But now it has been moved just below the taxpayer's identity.
With this, the IRS is stripping any excuse for ignoring the rules. This also means, whoever fails to pay the taxes they owe on crypto transactions can be subject to penalties and, in some cases, even criminal prosecution.
“Primarily based on what we’re seeing, individuals are beginning to get scared,” said Chandan Lodha, the chief working officer of Cointracker, a software program firm promoting crypto tax-prep providers.
The tax agency has been focusing on virtual currency transactions for some time now. Just earlier this month, the IRS issued guidelines clarifying how cryptos are treated for tax purposes when received in exchange for certain services. An individual has to report the digital currency as ordinary income for receiving it through a crowdsourcing platform in exchange for providing a service, as per the memorandum.
In late August, it had also been affirmed that taxpayers must declare their cryptos as income, which were obtained for “microtasks.”