The Internal Revenue Service (IRS) of the U.S. made several changes to the new draft of Form 1040, U.S. Individual Income Tax Return. One of the alternations concerns Bitcoin users, as the agency changed the placement of the controversial “virtual currency” tax declaration section.
The IRS moved the virtual currency tax disclosure section to the main page, right below the section into which individuals enter their name and home address.
The updated Form 1040 draft. Source: IRS, Forbes
On the 2019 tax return document, the virtual currency tax disclosure was placed on the top of Schedule 1, Additional Income and Adjustments to Income. The new placement is a clear message from the IRS that it wants individuals to disclose their cryptocurrency activities.
Throughout the past year, as The Erb Law Firm managing shareholder Kelly Phillips Erb said, the IRS made it clear the agency thought not enough individuals were reporting virtual currency taxes. Erb wrote:
“The IRS has made no secret of the fact that it believes that taxpayers are not properly reporting cryptocurrency transactions. An IRS dive into the data showed that for the 2013 through 2015 tax years, the IRS processed, on average, just under 150 million individual returns annually. Of those, approximately 84% were filed electronically.”
But Justin Winston Ono Wales, who describes himself as a crypto lawyer, said the updated IRS form is overreaching.
Wales noted that the IRS document should not ask individuals to declare whether they received or sold crypto in the same year.
“I should note that the updated IRS form doesn’t ask you to list your crypto holdings (yet), but to declare if you received or sold crypto within the year no matter the reason. This information is beyond the purview of information the IRS needs to do its job.”
The IRS is taking a stronger stance on cryptocurrency taxation, which would affect Bitcoin investors and holders in the U.S.
Still, the definition of virtual currency by the IRS and the scope of the taxation policy’s coverage could be considered ambiguous. BluePrint Wealth Alliance CPA Jeffrey Levine told CNBC last year that the safe route for taxpayers is to consider “any interaction you’ve had with virtual currency.”
Levine suggested that taxpayers are better off thinking “whether there’s any way this can fall under this very broad list of what you could’ve engaged in during 2019.” However, this approach could be highly impractical for many Bitcoin holders, especially those who send and receive transactions regularly.