Ask HN: Referal for Tax Audit Rep re: Bitcoin trading
The only thing out of the ordinary beyond my w2 withholdings was that I traded Bitcoin. I was mostly losing money, and the profits were attributable to Bitcoin appreciating. If I had just held over the same time period, I would have came out ahead.
I felt I had done the responsible thing, proactively figuring out how to pay taxes. I treated the Bitcoin as securities and calculated short term gains / losses. At the time, mainstream tax filers like TurboTax did not support crypto. I ended up paying for a service that generated a file I could import to desktop TurboTax, which by the way kept crashing because the developers seemed to have implemented some kind of very inefficient O(n^2) loop to import this data.
I find it strange that the IRS decided now to reinterpret the 2017 tax year, and the number they think I owe them is two orders of magnitude off from the amount I deposited into / withdrew from the crypto exchange.
I've tried calling the IRS, but keep being transferred around. I live abroad with Google Fi, but the connection is extremely unstable and was just kicked off midway after waiting 2 hours to be routed to a potentially helpful IRS agent. I am looking for tax attorneys and representation services that can help me address this issue.
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[ 3.0 ms ] story [ 36.8 ms ] threadThis theory matches up with the numbers that the IRS beliefs I owe them.
Total proceeds - total cost basis = taxable income
My theory is that the IRS is interpreting the total cost basis as $0. They are ignoring all my BUY events and that the crypto is appearing out of thin air (without regard for law of conservation of energy and costs Elon Musk is complaining about).
The reason I didn’t originally go to a tax professional is because my computer program made 100,000 trades. I didn’t trust a mom and pop shop to properly account this this, especially since there were trades between different cryptocurrencies which makes the situation even more complicated.
Atleast the service’s output is within the same order of magnitude as the money I withdrew from the exchange, less the money I deposited in. Whereas the IRS liability is 20x this
>Total proceeds - total cost basis = taxable income
Not taxable income but capital gains (unless you're talking about coins you mined, which is indeed ordinary income).
>I didn’t trust a mom and pop shop to properly account this this, especially since there were trades between different cryptocurrencies which makes the situation even more complicated.
It really doesn't make it much more complicated for taxes owed purposes. As far as the IRS is concerned, you can't "buy" anything with cryptocurrency. Its akin to a bartering of capital assets. So if you buy $10 worth of BTC and it appreciates and you use it to buy $100 worth of ETH and then you sell the ETH at $200 you have $190 of short or long term capital gains, depending on how long that all took. Cryptocurrency is property, not currency, for IRS purposes. Each of those transfers is a taxable event, but the tabulations is relatively straightforward and should be well within the grasp of a moderately with-the-times CPA.
As I mention above, get a tax attorney now if these values are anything you can't afford just straight up having to pay, plus fines, at the end of all this.
https://bitcoin.tax/home
You can choose different accounting algorithms ( FIFO, LIFO, average cost )
The first correspondence you received from the IRS is threatening a lien? That seems strange. I would expect they would have issued you an information audit first (basically: hey, can you give us more details on this?).
If we're talking big money, I'd say skip the accountant and go right for a tax attorney. Contact the federal bar.
Edit: I have heard good things about Moskowitz LLP: https://moskowitzllp.com/practice-areas/cryptocurrency-tax-a...
I vaguely remember logging into the IRS website last year and not seeing indication of this.
What I reported in 2017: SHORT TERM NO 1099B sale amount: $99,xxx.00 SHORT TERM NO 1099B cost AMOUNT: $97,xxx.00 NET SHORT-TERM GAIN/LOST $1,9xx.00
IRS audit reassessment amount: $33,xxx.00
This supports the theory that the IRS interpreted: SHORT TERM NO 1099B sale amount: $99,xx.00 SHORT TERM NO 1099B cost AMOUNT: $0 NET SHORT-TERM GAIN/LOST $99,xx.00
I was shuffling money back and forth and the position was never larger than $8,000.
Based on what the agent is currently telling me on the phone, their notes indicate Coinbase reported my 1099k as being $99,xxx.00 of income....
General informational link: https://www.irs.gov/appeals/collection-due-process-cdp-faqs
Definitely get in touch with a tax attorney before you go further with the IRS, and watch what you say.
So apparently Coinbase reported my 1099k as having an income of $99,xxx.00
Before this, I had no idea what a 1099k is, actually. I'm a salaried employee who receives w2.
Apparently I was supposed to file a schedule C for my cost basis, which I don't believe I did. I filed form 8949 instead.
I have a CSV of my trades from Coinbase as the cost-basis. I'm not sure if that is legitimate enough. I'm not sure Coinbase keeps records back to 2017....
The agent told me that the next steps are to receive the documents related to the audit and file an amended tax form with schedule C.
What I know is that Coinbase reported a 1099k with an income of $99,xxx.00
In addition to the income reassessment, the IRS also pegged on:
Total Self Employment Tax: $2,6xx.00
And no, I did not mine or stake.