Many cryptocurrency users have not filed their tax returns, fearing that the Internal Revenue Service (IRS) might change regulations after they submit their returns, according to a cryptocurrency tax expert. The expert stated that the IRS has the discretion to apply laws retroactively or retrospectively interpret them.
Complex Filing Process
Clinton Donnelly, CEO of Crypto Tax Audit, says many U.S.-based users have not filed cryptocurrency taxes because they fear the IRS might change the regulations after they submit their tax returns. In a post on the social media platform X, Donnelly, an expert in crypto capital gain calculation, insisted that this fear is widespread in the crypto community.
In his post, Donnelly focused on the IRS’ notice from March 25, 2014, which describes how existing general tax principles apply to transactions using virtual currency. In the update, also known as Notice 2014-21, the IRS stated that general tax principles applicable to property transactions would apply to transactions using virtual currency.
While the notice does clarify the revenue collector’s stance on crypto transactions, Donnelly says it lacks the legally binding nature of regulation. Before this update, the IRS had not commented on the treatment of crypto for tax purposes, he said.
However, after the notice was published, U.S. crypto users were forced to amend previously filed tax returns. Although amending past returns is now an option on forms like the revenue collector’s Form 8938, Donnelly says the complex steps required to complete this can be challenging for some tax preparers.
IRS Silence ‘Not Freedom for the Individual’
Donnelly, a crypto capital gain tax expert, says the U.S. Revenue Collector could make the filing process more user-friendly by being less ambiguous.
“The IRS has the freedom to make things retroactive or to have interpretations of the law be applied retrospectively. Just because the IRS hasn’t said something doesn’t mean that the law doesn’t apply to that particular topic. Their silence is not freedom for the individual,” Donnelly said.
Meanwhile, in an earlier post on X, Donnelly warned crypto users who have not filed Form 8938 under the Foreign Account Tax Compliance Act (FATCA) that they risk a $10,000 penalty. He added that users in this position are also “looking at a 40% accuracy penalty on any additional tax related to unreported assets.”