IRS

New Civil Liberties Alliance Challenges IRS Collection Of Private Crypto Investment Data

16/10/2020 by Idelto Editor

If you’re a bitcoin trader or investor, you’ve probably traded on multiple cryptocurrency exchanges and, for the most part, trusted that those exchanges are keeping your data secure from unlawful data collection just like a bank or credit card provider would. Unfortunately, that doesn’t seem to be the case.

On July 15, 2020 (Tax Day this year), New Civil Liberties Alliance (NCLA) filed a lawsuit on behalf of James Harper against the IRS, challenging the agency’s unlawful collection of private cryptocurrency information.

Harper decided to take this action against the IRS after he received a letter from the agency in August 2019 as part of its ongoing effort to alert taxpayers about crypto tax filing requirements. Harper wants to hold the IRS accountable for violating his privacy and identifying him as a cryptocurrency holder.

According to a case summary, “NCLA represents Mr. Harper before the United States District Court for the District of New Hampshire. Mr. Harper’s ‘crime’? Holding a bitcoin wallet. The lawsuit argues that the IRS has acquired the unbridled power to demand and seize Americans’ private financial information from third parties without any judicial process in defiance of the Fourth and Fifth Amendments and statutory protections.”

Some of you reading may even know Harper. He bought his first bitcoin in 2013 and has been an active member of the community ever since. According to the case, he has always paid his applicable taxes and reported his bitcoin trades. Like many of you reading, Harper used a few different cryptocurrency exchanges to conduct his trades, all of which contractually promised to protect his private information.

Last year, Harper became one of 10,000 crypto holders to suddenly receive a letter from the IRS stating that it had obtained his financial records from the cryptocurrency exchanges without any particular suspicious of wrongdoing. Additionally, the IRS failed to meet its statutory duty to give Harper advanced notice and an opportunity to challenge the seizing of his crypto data.

I’m not a lawyer, but that doesn’t sound like something the IRS should be able to do. I thought the government needed a subpoena to obtain private information. Is it able to obtain any data it wants without a warrant? So, what does a lawyer on the case think of this?

“There’s no IRS exception to the Bill of Rights,” Adi Dynar, a member of the litigation counsel, told me. “The people who own cryptocurrency do not thereby give up the right to secure the privacy of their private financial information. No federal official should obtain private financial information without giving its owner adequate notice and opportunity to contest. Especially so when the federal official has not obtained a valid subpoena or warrant from a court. Otherwise, it is a short, slippery slope into an unfettered surveillance state.”

When I sign up for a cryptocurrency exchange account, or any other service with a third party that contains private information and is contractually obligated to protect my private information, that is exactly what I expect that third party to do. It’s frightening to see the third party and government sidestepping our contractual rights and law. This makes me wonder what other information is being collected by government agencies without a warrant. Unfortunately, it seems like we’re much further down the path of a surveillance state than most realize. I hope that NCLA’s lawsuit will right this wrong and protect people from unlawful searches and seizures in the future.

Given NCLA’s close alignment with the cryptocurrency community, it has recently started to accept cryptocurrency to help fund this case. Your donation of bitcoin or other cryptocurrency to the New Civil Liberties Alliance is one of the most tax efficient ways to stop government overreach. Learn more and support it in its case against the IRS here.

This is a guest post by Alex Wilson, co-founder of The Giving Block. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The post New Civil Liberties Alliance Challenges IRS Collection Of Private Crypto Investment Data appeared first on Bitcoin Magazine.

IRS to Pay $625K to Crack Monero, Crypto Proponents Scoff at Contract

11/09/2020 by Idelto Editor

The U.S. Internal Revenue Service (IRS) wants to pay a contractor $625,000 if they can crack layer-two privacy schemes and the privacy-centric crypto asset monero (XMR). The tax agency says that the entity has “limited investigative resources” for tracing these types of cryptocurrency transactions.

The United States tax agency wants to obtain a solution to trace the digital currency monero (XMR), alongside “Layer 2 network protocol transactions” like the Lightning Network. The IRS will distribute $625,000 to “one or more contractors” in two phases; $500k will be distributed after the first proof-of-concept, then another $125k following a full examination and launch.

“Currently, there are limited investigative resources for tracing transactions involving privacy cryptocurrency coins such as monero, Layer 2 network protocol transactions such as Lightning Labs, or other off-chain transactions that provide privacy to illicit actors,” the IRS contract offer notes.

The contractor will provide “weekly status reports of progress” and work with members of the CI Cyber Crimes unit, and Cyber Special Agents.

“All documentation, data, source code, and software developed shall be provided to IRS-CI.” Essentially there are three goals for the contractor to accomplish, which include:

Provide information and technical capabilities for CI Special Agents to trace transaction inputs and outputs to a specific user and differentiate them from mixins/multisig actors for Monero and/or Lightning Layer 2 cryptocurrency transactions with minimal involvement of external vendors
Provide technology which, given information about specific parties and/or transactions in the Monero and/or Lightning networks, allows Special Agents to predict statistical likelihoods of other transaction inputs, outputs, metadata, and public identifiers with minimal involvement of external vendors
Provide algorithms and source code to allow CI to further develop, modify, and integrate these capabilities with internal code and systems with minimal costs, licensing issues, or dependency on external vendors

Of course on social media and forums, the crypto community had something to say about the latest job offer from the IRS. Some people also complimented monero (XMR) for being so elusive to law enforcement’s special task forces.

“This is so funny, how desperate the IRS is [and how they] want their cut of your darknet drug money,” said one person on Twitter. “It really must irk ’em to think of all that moolah they could steal if only you didn’t secure your funds through encryption. Monero, keep up the good work,” he added.

Another person wrote: “The odds are better to land a craft on our Sun’s surface… It must be a prerequisite to be somewhat mentally retarded to work for the IRS,” he added. Meanwhile, others also criticized the U.S. tax agency for looking into monero, while they should really look into the felonious operations tethered to the U.S. dollar.

“No need for the IRS to try and figure out the criminal activity that is using USD cash currency in their crimes, (probably 1,000,000,000X that of monero),” one person said.

In fact, the IRS contract was more of a laughing stock to many privacy coin supporters on social media.

“If you can crack Monero why the hell would you settle for $625K, LMAO,” another tweeted.

What do you think about the IRS wanting to crack monero and layer-two privacy-centric transactions? Let us know in the comments section below.

The post IRS to Pay $625K to Crack Monero, Crypto Proponents Scoff at Contract appeared first on Bitcoin News.

Do The IRS Crypto Tax Letters Violate Taxpayer Rights?

27/08/2020 by Idelto Editor

This article originally appeared in our Weekly Bits newsletter. If you want our news and analysis before anyone else, make sure you subscribe now!

Earlier this week, crypto tax preparation service CoinTracker shared news that its users were receiving letters from the Internal Revenue Service warning them that they may have misreported their crypto transactions to the agency.

The post included comments from r/Bitcoin indicating that crypto holders were receiving IRS Letters 6173, 6174 and 6174-A. The agency had sent out 10,000 of these letters last summer as well.

As in 2019, Letters 6174 and 6174-A are “no action” letters alerting taxpayers about crypto tax filing obligations in general, in case the taxpayer realizes they may have misreported. IRS Letter 6173 actually requires a taxpayer response by an included date, or else the IRA will scrutinize their tax account.

Though the notices might be confusing, there is little reason for bitcoin investors to be seriously worried that today is the day that the government comes for us.

“If you received one of these letters and didn’t report cryptocurrency transactions on your tax return, then there’s no reason to fret, so long as you submit an amended tax return,” Bitcoin Magazine reported in 2019. “But you may have received one of these letters even if you have accurately reported your cryptocurrency gains in your latest round of taxes. If you fall into the latter category, there’s probably even less reason to worry. The IRS is just testing the waters and using its findings as a learning experience.”

But the issuance of the letters should irk Bitcoiners nonetheless. As Coin Center’s Neeraj Agrawal highlighted on Twitter, the IRS Taxpayer Advocate Service (TAS) has called for an end to such issuances.

The TAS is an independence organization within the IRS that’s tasked with ensuring that every taxpayer is treated fairly and understands their rights. In a report to Congress on its objectives for the fiscal year 2021, the TAS called for an end to “soft letters” (specifically IRS Letter 6173) that replicate IRS examinations without the requisite taxpayer rights protections.

“What is disturbing about soft Letter 6173 is that it specifically addresses taxpayers who believe they are compliant and imposes unreasonable burdens on them outside the protection of an examination,” TAS reported. “The IRS has stated that Letter 6173 is not an examination and therefore the IRS is not required to follow the examination guidance or provide taxpayers the rights afforded them in an examination. Yet, Letter 6173 fails to inform taxpayers that the letter is not part of an examination and as written appears to be a threat directed at taxpayers who believe they are compliant.”

The report went on to point out that the IRS does not require some of the information it asks for in the letter via an actual tax return, thus mimicking an actual tax examination and undermining taxpayer rights and protections.

Finally, the report notes that the IRS Letters may be outright misleading or confusing.

“Letter 6173, like Letters 6174 and 6174-A, also addresses taxpayers who may have failed to include virtual currency on their return or who incorrectly reported the appropriate virtual currency tax consequences,” per the report. “The letters encourage the taxpayer to file an amended return or file a delinquent return. The letters fail to provide taxpayers with information about the application or assertion of penalties or interest should they ignore — or follow — their encouragement.”

The TAS promises to continue working to remove burdens imposed on taxpayers through such soft letters, but in the meantime, it appears that the IRS does not mind scaring, confusing or otherwise violating the rights of taxpayers who report cryptocurrencies. And as an agency for a government that has often demonstrated broad misunderstanding and outright antagonism toward Bitcoin, this shouldn’t be much of a surprise.

The post Do The IRS Crypto Tax Letters Violate Taxpayer Rights? appeared first on Bitcoin Magazine.

US Congressmen Want IRS to Balance Taxation and Innovation in the Cryptocurrency Space

06/08/2020 by Idelto Editor

A bipartisan quartet of US congressmen wants the IRS taxation policy not to dissuade taxpayers from participating in blockchain token staking.

These politicians believe America’s ingenuity can help drive this promising staking technology.

The four congressmen are Bill Foster (D) of Illinois, Darren Soto (D) of Florida, Tom Emmer (R) of Minnesota, and David Schweikert (R) of Arizona.

In their letter addressed to IRS Commissioner Charles Rettig, the quartet expressed concern that the “taxation of staking rewards as income may overstate taxpayers’ actual gains from participating in this new technology.”

They add this could result “in a reporting and compliance nightmare, for taxpayers and the Service alike.”

The letter, in which the U.S. politicians explain their understanding of proof-of-stake (POS), also gives reasons why they favor POS ahead of bitcoin’s proof-of-work consensus.

The politicians say in addition to needing “massive amounts of energy,” the Bitcoin network is “secured by a relatively small number of miners.” On the other hand, in POS, “all tokenholders can contribute to network security.”

By staking tokens, participating third-party tokenholders can also receive newly created tokens as rewards for helping to maintain the network.

The quartet says it agrees with the principle “that taxpayers’ true gains from these tokens should indeed be taxed.”

However, the politicians suggest a different solution:

Similar to all other forms of taxpayer-created (taxpayer-discovered) property — such as crops, minerals, livestock, artwork, and even widgets off the assembly line — these tokens could be taxed when they are sold.

Eager to keep the U.S. abreast with this technology, the congressmen end their letter by urging the IRS to continue pursuing its mandate “but also (to) ensure innovation won’t be driven elsewhere.”

This letter by the four members of Congress is the latest signal that the U.S. is moving to embrace blockchain technology and cryptocurrencies.

In July, the Office of the Comptroller of the Currency (OCC) clarified that national banks and federal savings associations can provide cryptocurrency custody services for customers.

Also in the same month, a U.S. federal court ruled that bitcoin is a form of money.

Meanwhile, reacting to the letter by the U.S. congressmen, Tim Ismilyaev, CEO and founder at Mana Security, says the growth of POS has finally forced some people in the U.S. government to see the importance of embracing cryptocurrencies.

“The US government recognizes the immense growth of assets locked in POS and defi [decentralized finance] markets (over $15B is already locked in such products) although these markets did not exist a few years ago. The value of locked assets is likely to surpass $100B mark in upcoming years, and this will happen with or without US approval. So this move by Congress toward crypto is rational.”

The bipartisan letter was written on July 29.

What do you think of this letter? Tell us your thoughts in the comments section below.

The post US Congressmen Want IRS to Balance Taxation and Innovation in the Cryptocurrency Space appeared first on Bitcoin News.

Advocacy Group Claims IRS-Issued Crypto-Warning Letters Violated Taxpayer’s Rights

14/07/2020 by Idelto Editor

Close to a year ago last July, the U.S. Internal Revenue Service (IRS) revealed it would be sending ‘soft letters’ to suspected American cryptocurrency owners advising them to pay their taxes. Now according to the Taxpayer Advocate Service, a subsidiary of the IRS, the soft letters undermined the rights and protections of American taxpayers. The advocacy group stressed that specifically IRS Letter 6173, essentially violated tenets within the Taxpayer Bill of Rights.

The U.S. government has been cracking down on digital currency operations and users for a few years now. Last year, the American tax agency, the IRS, detailed it would be investigating a number of taxpayers who allegedly owned virtual assets like bitcoin, but didn’t pay the appropriate taxes. The announcement was initiated on July 26, 2019, when IRS Commissioner Chuck Rettig explained that through compliance efforts, the IRS managed to collect over 10,000 names. Three types of soft letters were sent to the 10,000 American taxpayers by the end of August 2019.

“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,” IRS Commissioner Chuck Rettig insisted. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

However, Erin M. Collins, from the tax agency’s Taxpayer Advocate Service, recently published a letter on June 29, that notes the virtual currency soft letters violated the Taxpayer Bill of Rights. The letter from Collins claims that specifically, the Letter 6173 warnings undermined the rights and protections of American taxpayers.

“It is the National Taxpayer Advocate’s position that these intrusive requests violate taxpayers’ rights and should not appear in any soft letters or communications outside the examination process,” explains the Taxpayer Advocate Service. The letter called “2021 Objectives Report to Congress” further notes:

What is disturbing about soft Letter 6173 is that it specifically addresses taxpayers who believe they are compliant and imposes unreasonable burdens on them outside the protection of an examination. The IRS has stated that Letter 6173 is not an examination and therefore the IRS is not required to follow the examination guidance or provide taxpayers the rights afforded them in an examination. Yet, Letter 6173 fails to inform taxpayers that the letter is not part of an examination and as written appears to be a threat directed at taxpayers who believe they are compliant.

The objectives report for 2021 highlights that Letter 6173 goes against the written principles documented within the Taxpayer Bill of Rights. One of the most fundamental rights written in the Taxpayer Bill of Rights is the right to privacy, which is protected in section 14 of the Constitution. The Taxpayer Advocate Service often identifies systemic problems that exist within the confines of the IRS infrastructure and enforcement methods.

“The request for an explanation made outside the audit process burdens taxpayers who believe they are compliant and undermines their rights to be informed and to privacy, which includes the right to expect that any IRS inquiry will be no more intrusive than necessary,” the Taxpayer Advocate Service said. The 2021 objectives report concluded by highlighting:

The taxpayer may find it necessary to hire representation to review his or her records to provide a complete response and then still be subject to an examination later, long after the taxpayer’s response, for which the taxpayer may again need representation. Letter 6173 is not consistent with the protections afforded taxpayers. The request for a sworn written statement should be removed from Letter 6173.

Essentially, Collins and the Taxpayer Advocate Service plans to remedy this situation by the fiscal year 2021. The agency intends to work toward removing burdens imposed on taxpayers who believe they are compliant.

The watchdog aims to work with the IRS by encouraging guidance and positive incentives for taxpayers who receive Letters 6173, 6174, and 6174-A. The Taxpayer Advocate Service hopes to “work with the IRS on future soft letters to eliminate burdens on taxpayers by protecting their rights.”

What do you think about the 2021 objectives letter from the Taxpayer Advocate Service? Let us know what you think in the comments section below.

The post Advocacy Group Claims IRS-Issued Crypto-Warning Letters Violated Taxpayer’s Rights appeared first on Bitcoin News.