IRS is trying to encourage more and more citizens to disclose their cryptocurrency earnings. The problem is that most of the citizens are not responding to the request of the IRS. According to a personal finance service by the name of Credit Karma, only 0.04% of the total citizens have actually disclosed the cryptocurrency earnings.
The actual percentage of taxpayers who are invested in cryptocurrencies is much more. The problem is that most of the cryptocurrency investors are not inclined to disclose their earnings. Also, they have made these profits before the transparent rules and regulations were in the place. This is the reason why it is very difficult for the IRS to actually find out the scale of their transactions. People are not voluntarily coming forward to share the transactions either.
Also, in the last couple of years, the price of Bitcoin, as well as other cryptocurrency assets, has increased by a significant amount. Owing to this very reason, the tax liability of such individuals is also on the higher side.
Since the last 6 to 8 months, IRS has been consistently asking the exchanges to verify the identity of the consumers. This is done to ensure that in the future, consumers are not able to evade taxes and cryptocurrency earnings. According to cryptocurrency traders by the name of Brandon Williams, the reason why very few individuals are actually showing cryptocurrency gains is that it is very difficult to track the trades which are conducted in cryptocurrencies. Moreover, many traders opt for high-frequency trading. Owing to this very reason, it is very difficult to create a proper log of the cryptocurrency trades.
While this might be one of the reasons why very few investors and traders have actually reported cryptocurrency earnings but the near-anonymous account availability in the past couple of years is also one of the factors.
As the rules and regulations become more transparent, people will have no option but to disclose their cryptocurrency earnings and also pay tax on it. This will mean that the IRS will be able to collect hefty amounts in taxes related to cryptocurrency gains.
Also, these days exchanges are going for the KYC norms for almost all the accounts. This ensures that the identity of the individuals holding these accounts will be disclosed. Once the identity is verified, the individuals will have no other option but to file the returns for the gains which they get from cryptocurrencies.
Adam Webb is editor in Smartereum, blockchain and currency news, where he produces updates on Blockchain, Ethereum and other alternative cryptocurrencies.