MAR 12, 2018
For a brief while there, cryptocurrencies enjoyed a financial fantasy camp type atmosphere. No regulation, nobody paid taxes on gains…surely, this was the future! This time, it was different!
It wasn’t. It never is. The SEC is now wading, full force, into the crypto regulation business. Even more horrifying for those who hit for windfall gains on Bitcoin’s initial volcanic surge, the IRS is sending out 1099s to investors (like the one below who finds himself on the wrong end of a $2.4M bill) who thought their identities were hidden.
The Securities and Exchange Commission (SEC) announced that bitcoin and many other cryptocurrencies meet the government’s definition of a security and are therefore subject to regulation. Importantly, crypto exchanges must register with the SEC.
“We’re seeing the tip of the iceberg,” said Dan Gallagher, a former SEC commissioner, adding, “there is going to be a ton of enforcement activity.”
The IRS is also cracking down on bitcoin. It’s already demanding all records of cryptocurrency transactions from cryptocurrency exchanges including names, addresses, Social Security numbers and bank account information about their clients.
One man got a very nasty surprise when he received an IRS Form 1099 from Coinbase, a major U.S.-based cryptocurrency exchange (not to be confused with Coincheck).
It informed him that he owed $2.4 million in taxes, despite his estimate that he only put $8,000 into cryptos. He decided to sit tight in the belief that he does not owe the taxes. Big mistake.
The IRS will take its copy of the 1099 (the IRS also receives a copy) from the exchange and assert that this man does owe the taxes. The IRS puts the burden of proof on the taxpayer to show they don’t.