How can the IRS learn about your Bitcoin Income?
Many people believe that since the ownership of virtual currency is anonymous and their wealth is stored in bitcoins, the IRS will never learn about it, and hence no need to include this income on the tax rturn.
Intentionally refusing to report or pay taxes on income is a tax fraud. Whether you’re likely to be caught is an entirely different story. Do not confuse the two! However, if you think that BTC is anonymous and the IRS has no ways of learning about your BTC income, here are a few pointers for you.
1) If your bitcoin exchange or payment processor has your social security or EIN number, they may voluntarily report your BTC transactions to the IRS on Form 1099.
2) Your bitcoin exchange or bank might file a Suspicious Activity Report ("SAR"). The financial institutions are prohibited from telling you if the SAR was filed.
3) The IRS has a whistle blower program that generously rewards snitchers. If you angreed someone who knows you have made lots of tax free cash with BTC, be worried. They may take revenge on you, make your life miserable and get sizable cash reward from the IRS while at it. Also, never underestimate the evil of jealousy!
Please contact us with any Bitcoin Income Tax matters. If you are already in trouble, please urgently get in touch with our Trusted Tax Advisors and we will try to help.