Cryptocurrency Tax Amnesty: Voluntarily Disclosing Past Noncompliance to the IRS

Cryptocurrency Tax Amnesty: Voluntarily Disclosing Past Noncompliance to the IRS

The IRS has been cracking down on cryptocurrency tax compliance lately. Many crypto traders are young people who don’t have much experience with complex tax rules. Because of confusing IRS guidance, a lot of crypto users have accidentally failed to report income and pay taxes properly in the past. Now the IRS wants to collect back taxes and hit people with penalties. This aggressive approach seems unfair given the circumstances. Instead of punishing inadvertent noncompliance, the IRS should offer a tax amnesty program to let crypto traders voluntarily fix past mistakes.

Who Needs Tax Amnesty?

Cryptocurrency tax rules are confusing. The IRS guidance talks about coins being property and capital gains taxes, but doesn’t explain details about how to calculate basis, report trades, etc. Many crypto traders are young and new to filing taxes in general, let alone this complex asset class. Accidental noncompliance is common.

For example, if you bought Bitcoin back in 2015 and sold some in 2017, you probably should have reported capital gains. But a lot of people didn’t realize that at the time. The tax forms don’t have a clear place to report cryptocurrency stuff. With unclear rules and reporting, many crypto users failed to fully comply without meaning to.

The IRS Approach Seems Unfair

Rather than offering amnesty and helping people fix past issues, the IRS has taken an aggressive stance:

• Lowering the 1099-K threshold to target more taxpayers
• Receiving more third-party data on transactions
• Not mentioning potential penalties or amnesty options

This seems overly harsh given the circumstances. The IRS offered amnesty for people with foreign accounts, who are more likely to be experienced taxpayers intentionally hiding assets overseas. Yet young crypto traders get no such opportunity? That’s not fair.

A Better Path Forward

The IRS should offer tax amnesty to voluntarily disclose past cryptocurrency noncompliance. People could come forward, report previous mistakes, pay back taxes, and move forward in compliance without penalties. This would increase tax revenue while avoiding unfair punishment. It’s a win-win.

Crypto tax rules remain confusing with unclear reporting requirements. Until that’s resolved, amnesty seems like the best approach. The IRS has done tax amnesty programs before, like in 2009 after UBS. They should do it again now for cryptocurrency traders.

Let people fix past issues without fear. Don’t punish inadvertent mistakes. Offer amnesty instead.

References

[1] Tax justice for crypto users: The immediate and compelling need for an amnesty program

[2] IRS Criminal Investigation Voluntary Disclosure Practice

[3] Cryptocurrency and Federal Tax Enforcement

[4] Tax Consequences of Cryptocurrency Transactions and Correcting Historical Noncompliance

[5] We Need Tax Amnesty for Crypto Traders Now

[6] New Crypto Tax Amnesty 2023 (Did You Report Crypto Income)