IRS solicits contractors to crack down on crypto tax evasion

US tax regulator looks to collect API keys, on and off-chain data, and taxpayer documents in an effort to fight crypto non-compliance

By Shannon Moyer | 19 May 2020

The IRS is evolving its efforts to crack down on crypto tax non-compliance, recruiting independent contractors obtain cryptocurrency transactions data.

On May 12, software provider CryptoTrader.Tax released an email it received from the IRS, in which the government body said it was “placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract.”

In a Statement of Work (SOW) request, the IRS said it is looking to collect this data through:

  • API keys, gathered from exchanges, wallets, etc.
  • Public onchain data and private off-chain data
  • Taxpayersubmitted paper documents
  • Data from merchant electronic systems
  • Excel, CSV and PDF files “from various sources”
  • Related data, for valuation purposes

Data on the acquisition of virtual currency will also be recorded, as well as tracking information across platforms, wallets and exchanges, for both on-chain and off-chain transactions.

The SOW says that given the vast number of digital asset transactions a taxpayer can make in a year, “these transactions need to be aggregated, and the assets involved need to be valued, as part of the process of computing gains and losses.”

Contractors are also expected to consult with the IRS ahead of any meetings with taxpayers, assist the IRS ahead of trials, and testify as a summary witness where necessary.

However, Modern Consensus notes that the IRS’ current infrastructure is ill-prepared to handle large amounts of Bitcoin, particularly given how quickly the market price fluctuates.

This call for contractors is the latest effort by the IRS to quell crypto tax evasion. Following a wave of compliance letters sent to cryptocurrency holders in 2019, the IRS finally introduced a question on cryptocurrency activity on the 1040 form for 2020.

The IRS did not respond to a request for comment before publication of this article.

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