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Crypto taxes, reporting and tax audits in 2021

The IRS appears to believe that millions of crypto transactions might still be unreported, and it wants to fix this, so be careful out there.



This year was like no other. Now that it has limped to a close and we look at the promise of a better 2021, it is time to think about taxes. Although there were many other notable things about 2020, there were some tax points to savor — and some to fear.

Gains and losses

It is hard to look at crypto and 2020 without commenting on gains and losses. Bitcoin (BTC) ballooned in price, making a lot of investors happy. Of course, if you had taken short positions, you are less content. And if you were invested in XRP, the news that the United States Securities and Exchange Commission is unhappy with XRP has caused some price impact in the unwanted direction. When it comes to real and perceived value and buying power, these developments matter. But what about taxes?

Related: SEC vs. Ripple: A predictable but undesirable development

Tax day delay: IRS more lenient?

Tax returns for 2020 are due on April 15, 2021, which is not too far away. Don’t count on a delay like last year. In 2020, the Internal Revenue Service gave us all a 90-day reprieve on return filing and payments, until July 15, 2020 (IRS Notice 2020-17). The world may still be in COVID-19’s grip during the upcoming tax-filing season, but most observers do not expect the same kind of latitude from the IRS when it comes to 2020 tax returns.

The same can be said for the IRS easing up on many of its enforcement activities. Early in 2020, the IRS Commissioner Chuck Rettig announced the “People First Initiative.” Need to pay your taxes in installments? The IRS will help because it has a well-worn process for working out installment payments. Plus, installment payments due between April 1 and July 15, 2020, were suspended, as were tax liens and levies. Even new passport debt certifications when delinquent tax debts exceed $50,000 were on hold, and most new tax audits were on hold, too.

How about now in early 2021? Many IRS employees are still working mostly remotely, but don’t assume that this means you are going to be cut some slack in early or mid-2021 that taxpayers received in 2020. It is highly unlikely. How about arguing with the IRS or in court that you shouldn’t have to pay IRS penalties because you were adversely impacted by the pandemic? You can try it, but the IRS commissioner has already pushed back hard on suggestions that the IRS should have a special pandemic allowance for penalties. Again, don’t count on it.

IRS forms for crypto taxes

Two years ago, the IRS made crypto a kind of everyman’s tax issue by adding a question to everyone’s tax return, and the same thing has happened with 2020 tax returns. It means that starting with 2019 tax returns filed in 2020, the IRS asks you a simple question:

“At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

It’s pretty simple: just yes or no; it does not ask for numbers or details, though that would go elsewhere on your tax return.

This addition for 2019 returns is being continued for the 2020 returns you file in 2021. In fact, you should assume it will be a standard feature of tax returns from now on. Because the IRS classifies crypto as property, any sale is going to produce either a gain or loss, and a yes or no box can turn out to be pretty important. In fact, given the IRS’ track record with offshore bank accounts, it could even mean big penalties or even jail.

The Department of Justice’s Tax Division has successfully argued that the mere failure to check a box related to foreign account reporting is willfulness. Willful failures carry higher penalties and an increased threat of criminal investigation. The IRS’ Criminal Investigation Division is even meeting with tax authorities from other countries to share data and enforcement strategies to find potential cryptocurrency tax evasion. This seems reminiscent of the foreign bank account question included on Schedule B.

If a taxpayer answers “No” and then is discovered to have engaged in transactions with cryptocurrency during the year, the fact that they explicitly answered No to this new question (under penalties of perjury) could be used against them. What if you just have a kind of “signature authority” over crypto owned by your non-computer-savvy parents or other relatives? That way, you can help them manage their crypto.

If you sell a parent’s crypto on their behalf, at their request and/or for their benefit, should you answer “Yes” or “No” to the question? Various escrow and trust arrangements — some informal, some not — have blossomed. They can be sensitive, particularly now with the IRS’ much greater access to information. But be careful of who is selling and how such activities are reported.

Should you attach an explanatory statement to the return explaining your relationship to the digital currency? There probably aren’t perfect answers to this question, but what is clear is that answering “No” if the truth is “Yes” is a big mistake. Skipping the boxes entirely might not be as bad, but it isn’t good either if the truth is “Yes.” If the truth is “Yes,” say so, and remember to disclose and report your income, gains, losses, etc. Maybe that’s the point of the question: to be a prominent reminder.

Other tax forms

Don’t think that your tax return is the only tax form you’ll see. Although crypto still escapes some reporting forms, that is much less true today than it once was. How about IRS Forms 1099-MISC, 1099-K, 1099-B or Schedule K-1? There’s even the new Form 1099-NEC for the 2020 tax return season.

All of these forms can and do report crypto payments and transactions. These forms arrive around the end of January for reporting payments or transactions made in the previous calendar tax year. Wages paid to employees in digital currency must be reported on a Form W-2 and are subject to federal income tax withholding and payroll taxes.

Salaries made in digital currencies made to independent contractors are taxable to them, and payers engaged in business must issue Form 1099-NEC. A payment made using a digital currency is subject to Form 1099 reporting just like any other payment made in property. That means if a person in business pays crypto worth $600 or more to an independent contractor for services, a Form 1099 is required.

If you receive any Forms 1099, keep track of them. Each one gets reported to the IRS (and state tax authorities). If you don’t report or otherwise address the reported income on your tax return, you can expect the IRS to follow up.

Transactions trigger taxes

In 2014, the IRS announced that crypto is property. If you have 100 BTC and you sell 10, which 10 did you sell? There is no perfect answer to this question. Most of the tax law considers shares of stock, not cryptocurrency. Specific identification of what you are selling, when you bought it, and for what purchase price is likely to be the cleanest. But that may not be possible. Some people use an averaging convention, where you essentially average your cost across a number of purchases. Consistency and record-keeping are important.

IRS audits and information access

The IRS uses software to track crypto and has also gotten access to records via other sources. Besides, with the forms 1099 and K-1 being issued, many reports are now being dropped in the IRS’ lap. That should be a cause for concern for taxpayers.

The IRS has crypto training now for its auditors and criminal investigation division agents. Should the latter scare you? I think so. The IRS and Department of Justice still bring criminal charges primarily involving crypto use for illegal purposes involving other crimes, such as money laundering or child pornography. But that is no guarantee.

Besides, most criminal tax cases historically come out of regular old civil IRS audits. The IRS auditor sees something it thinks is fishy and invites the criminals to the IRS to take a look. It’s called a referral, and you don’t know if it is happening. In fact, you usually don’t know until it is too late. If you forget to report your crypto gains in past years, then you ought to reconsider this. Don’t wait for the IRS to find you even if you did not get one of those 10,000 IRS crypto warning letters.

Taxpayers may think they will not be caught, but the risks are growing — and the best way to avoid penalties is to disclose and report as accurately as you can. IRS commissioner Chuck Rettig has even moved to increase criminal investigations, too, so be careful out there.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Robert W. Wood is a tax lawyer representing clients worldwide from the office of Wood LLP in San Francisco, where he is a managing partner. He is the author of numerous tax books and writes frequently about taxes for Forbes, Tax Notes and other publications.




Investment product issuer 21Shares will list Bitcoin ETP on Aquis Exchange

Exchange-traded product issuer 21Shares said it will make its Bitcoin ETP available to U.K. professional investors through the Aquis Exchange.



The announcement comes the same day as ETC Group’s Bitcoin ETP began trading on the same exchange.

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Investment product issuer 21Shares will list Bitcoin ETP on Aquis Exchange

Switzerland-based 21Shares, formerly known as Amun, has said it will make its Bitcoin (BTC) exchange-traded product available to traders in the United Kingdom through the Aquis Exchange.

According to an announcement from 21Shares, its Bitcoin exchange-traded product (ETP) will be available to professional investors on the Aquis Exchange this summer. U.K.-based firm GHCO will be acting as the crypto ETP’s liquidity provider, with 21Shares saying the product would be “engineered like an [exchange-traded fund].”

“ETPs trade on exchanges in a similar manner to a listed stock and institutional investors in the U.K. will get exposure to Bitcoin via a regulated framework and structure which they are already accustomed to,” said 21Shares. “The ETP has been designed to provide institutional U.K. investors with secure and cost-effective exposure to Bitcoin without the associated Bitcoin custody and security challenges.”

21Shares reported more than $1.5 billion in assets under management across 14 ETPs available on European stock exchanges. One unit of the firm’s Bitcoin ETP on Aquis will reportedly represent exposure to 0.00035 BTC, or roughly $12.54 at the time of publication.

A few companies have begun expanding their crypto products to the U.K. market. Also on Monday, crypto investment manager ETC Group’s Bitcoin ETP began trading on the Aquis Exchange in London and Paris. However, the country’s financial watchdog, the Financial Conduct Authority, banned the sale of crypto derivatives to retail traders in January.

21Shares reported more than $1.5 billion in assets under management across 14 ETPs available on European stock exchanges. One unit of the firm’s Bitcoin ETP on Aquis will reportedly represent exposure to 0.00035 BTC, or roughly $12.54 at the time of publication.



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We tracked down the original Bitcoin Lambo guy – Cointelegraph Magazine

After the chair of the Federal Reserve, Alan Greenspan, insisted Bitcoin couldn’t be used to buy anything of value in 2013, Jay snapped up a yellow Lamborghini to prove him wrong. We caught up with Jay in Southeast Asia.



Jay is the Bitcoin OG who created a meme by buying a Lamborghini with the cryptocurrency. He went from a poverty-level existence to enjoying a well-off lifestyle in a gated community thanks to mining Bitcoin in the early days — but not without having to worry for his family’s safety.

As BTC first broke the $1,000 milestone in December 2013, former Chair of the U.S. Federal Reserve Alan Greenspan suggested that Bitcoin could not actually be used to buy anything of value.

That’s when Jay (not his real name), then in his early 30s, and with the help of his wife who is also a Bitcoiner, used almost 217 BTC to purchase what is believed to be the original Bitcoin Lamborghini at the Lamborghini Newport Beach dealership. He then provided the evidence on the anonymous imageboard 4chan.

This proved that Bitcoin had real value — who would accept fake money for a Lamborghini? A meme was born that launched a million other memes.

“It’s kind of overwhelming as an individual — I created a meme.”

An archetypal Bitcoin OG, Jay got his start around 2010. Despite being broke and supporting a family on very low earnings in Southeast Asia, he ended up setting up 20 GPUs, resulting in electricity costs that were six times his rent.

Lambo BTCBuying a Lambo with Bitcoin in 2013.

“I was really poor — I made like $8,500 per year while supporting a family, and babies cost money. I had businesses and savings before, but going to university and starting a family got me damn close to $0,” he recalls, bewildered.

“It’s amazingly hard to HODL bitcoin when you eat pasta every day and make fuck-all, and spend what you do have on computers and miners. But I had that faith, I knew this was world changing.”

Today, Jay lives in a gated community within a small city of under 100,000 in Southeast Asia with his wife, three children, and three dogs — one of them a professionally trained and imposing guard dog whom I had no doubt was ready to rip my face off on command when I visited.

His home actually consists of two houses on two streets, discreetly connected in the middle, creating an understated facade. Whereas the front garage contains “normal” luxury vehicles, the back holds none other than Bitcoin Lamborghini 2.0.

“Sadly because I was so close to $0 and had kids, I had to sell so much BTC so early because I wanted some safety net. I could add at least one zero to my net worth if I had no family — but it’s a paradox because family is why I do it.”

Lambo conventionThe Bitcoin Lambo in Texas at a CryptoWomen meetup in 2014. Supplied.Wealth worries

Jay’s fortune is crowned by a loaded 1,000 BTC Casascius “physical Bitcoin” gold coin of which only a few exist. It is, in fact, the most valuable coin in the world, with a face value of approximately $60 million dollars and a collector premium of many millions more.

This is how we came to meet, as I act as a broker of such rarities and wrote the Encyclopedia of Physical Bitcoins and Crypto-Currencies. For Jay, owning such coins can, however, prove stressful “if someone connects me to holding tens of millions of dollars in what are effectively bearer bonds.” Such coins hold the private key to the stated amount of Bitcoins under a tamper-proof label, making them comparable to bearer bonds, gold or cash.

Such privilege is “difficult to deal with” on the family front, Jay says. Living in a country with a huge wealth disparity, he explains that money can be metaphorically used to build either a bigger wall to separate himself from the masses, or a bigger table in order to bring them to his side. “Honestly, I have to do both, but I want to build a bigger table,” he says. He feels that he faces very real threats, including the kidnapping of family members by international criminals.

“I had issues with some Russian oligarchs in the past, but I don’t think I’m a target now.”

Casascius coinA loaded 1,000 BTC Casascius coin, which Jay bought for $5,000

Still, it’s hard to put worry or paranoia aside — states of mind that Jay considers natural to him. Late one night, as we enjoyed beer and burgers on the edge of town, Jay’s merriness suddenly turned to keen attention as he spied a vehicle loitering near his Lamborghini. “It’s been there over 30 seconds,” he said, appearing still nervous after the car drove off. “They were probably just admiring the car — but what if?” He was visibly uneasy.


Jay describes a normal childhood in an average lower-middle-class family in the U.S. midwest. Money was sometimes tight, but basic needs were covered and school was OK. He excelled in geography, which simply came naturally to him without the need to study.

He started working at the age of 12, stapling large boxes together at a warehouse owned by a family friend. The work was repetitive and it was actually illegal to employ such a young child, but Jay was there willingly and feels that he gained a valuable perspective from socializing with business owners at such a young age.

After high school, Jay enrolled in a university close to home to study international relations and computer engineering. He, however, became disillusioned, believing that “a lot of what the university was teaching me was absolute bullshit” and mostly aimed at making him into “a good wage slave.” As he studied money, “it blew my mind that fiat money was based on nothing — it was debt.” He dropped out to run his own book-selling business, which he later sold to a firm that itself went on to be acquired by Amazon.

“The realization of the financial system and money being bullshit helped motivate me to drop out of university in the U.S.A. and do my own thing.”

Jay used the money to travel, first heading to Mongolia, which he felt might be a “missed gem” and might hold economic opportunities. Later in Kazakhstan, he spent time with a group that “trained golden eagles to hunt wolves,” and he heard high praise of Southeast Asia from other passing travelers — knowledge he filed away for later. His money ran low, and he soon returned to the U.S. where he found some success trading oil futures from home.

“When the tsunami hit Southeast Asia on Boxing Day 2004, I realized that sitting around doing the bullshit nothing I was doing was bad and jumped on a plane to help.”

Jay decided to stay and attended a local university, this time choosing to study business administration. Years after graduating and struggling financially, he came across the Bitcoin white paper in 2010 via the infamous Cypherpunks mailing list, where it was discussed in the early days of the cryptocurrency. He had read a book about cryptography before — he loved reading — and the project caught his eye. He found it brilliant, “but I thought there was a very low chance it could become worldwide money — it was too crazy.”

The biggest draw was not the money aspect, but the idea that “this breaks censorship.” He recalls someone putting Bible verses into the blockchain early on — forever indelible. With Bitcoin, anyone could write freely on the wall of eternity.

Celebrating Bitcoin breaking $100 on April 1, 2013. Supplied.The Bitcointalk Forums

The Bitcointalk forum was an interesting place in the very early 2010s, a time when Jay remembers a collection of seemingly “random people with random ideas.” Bitcoin was then a primarily intellectual pursuit, and it attracted socialists and communists in addition to the libertarians who became more associated with the movement’s history.

One idea discussed around that time included the canceling and reissuing of coins after two to five years of inactivity at an address, while others suggested that mining rewards could be adjusted based on individual need or national income. As there was no firmly established value, the Bitcoin idea was considered quite malleable and not necessarily set in stone — it could become anything.

Jay was confused by some of the discourse. “I wasn’t quite well-read in the philosophy then, so I didn’t really understand what the leftists saw in the idea,” he recalls.

The culture of the forum evolved as waves of discourse and new users followed news coverage of Bitcoin. There was a loose “core group” of enthusiasts who considered each other close to the project; “some new people would be added every now and then, and some would leave.” The culture, however, grew more toxic.

Though he first reasons that the toxicity was due to a “Wild West culture” that naturally forms in a gold rush of sorts, Jay notes that people in the contemporary WallStreetBets community, “seem to be incredibly polite and welcoming.” He adds that while he “does not want to say anything bad about anyone,” he assigns some responsibility for the culture upon the Bitcointalk forum’s administration.

“I think that the leadership of a community helps shape it. The person running Bitcointalk was quite inexperienced and pretty much fell into the role — I wonder if it could have been different.”

By contrast, the early Ethereum community seemed friendlier at the time, possibly due to the credit of Vitalik Buterin acting as a visible community leader. Buterin reached out to Jay during the process of launching Ethereum, but Jay was unimpressed.

“I told Vitalik over Skype that Ethereum was going to fail because it was too centralized.”

Despite his concerns, Jay owns some Ethereum and is not an extreme Bitcoin maximalist like some of his peers.

“There shouldn’t be people who hold keys to the internet. It should be entirely math-based, because it can be,” he reasons, referring to what he sees as unnecessary centralization and reliance on human figures within the Ethereum community.

Future directions

Already an old-timer, little more than a decade after stumbling upon Bitcoin, Jay is cautious about newer developments, calling DeFi “definitely risky” due to the risk of the leadership of some projects having the power to unilaterally take control of your funds. He has a similar take on NFTs, saying that “99% of them will become worthless, but some might become cult classics,” a line of thinking that was especially prominent regarding ICOs in the 2017 boom.

All considered, Jay is doing well in life and is focused on his family, but there is a certain unease — a restlessness about him, even unrelated to physical safety.

As with many people who reach their goal, he has everything he could ever dream of, but it’s not exactly clear what he should do next, considering he feels that he has enough to financially cover his descendants to the 4th generation. One thing’s for sure — he’s not looking for fame. “I don’t really want this article out there, but I think overall it is fair and the story should be told,” he says.

“I have reached my goal, so now what? I have accomplished my life goals but I’m not dead yet, so I have to do something. No idea what — but something…”

“It’s kind of overwhelming as an individual — I created a meme.”



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Guggenheim’s new fund may seek exposure to Bitcoin, SEC filing shows

The company stated that the fund’s exposure to crypto can result in substantial losses to the fund, citing a number of risks associated with the industry.



The new Guggenheim Active Allocation Fund will be a diversified, closed-end management investment fund that may seek investment exposure to cryptocurrencies.

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Guggenheim’s new fund may seek exposure to Bitcoin, SEC filing shows

Global investment firm Guggenheim Investments has filed with the United States Securities and Exchange for a new fund that may seek exposure to Bitcoin (BTC).

According to a Tuesday filing, the new Guggenheim Active Allocation Fund will be a diversified, closed-end management investment fund that may seek investment exposure to cryptocurrencies like Bitcoin through cash-settled derivatives instruments. Such instruments include exchange-traded futures, investment tools offering exposure to BTC as well as other cryptocurrencies through direct investments or indirect exposure such as derivatives contracts, the filing notes.

The company stated that the fund’s exposure to crypto can result in substantial losses to the fund, citing a number of risks associated with the industry:

“Cryptocurrency is a new technological innovation with a limited history; it is a highly speculative asset and future regulatory actions or policies may limit, perhaps to a materially adverse extent, the value of the Fund’s indirect investment in cryptocurrency and the ability to exchange a cryptocurrency or utilize it for payments.”

According to the document, Guggenheim’s chief investment officer Scott Minerd will be responsible for the day-to-day management of the fund’s portfolio alongside assistant CIO Anne Bookwalter Walsh, managing director Steve Brown, and director Adam Bloch.

Last year, Guggenheim placed another SEC filing, stating that its Guggenheim Macro Opportunities Fund may seek investment exposure to Bitcoin indirectly through investing up to 10% of its net asset value in Grayscale Bitcoin Trust.

Minerd is known for his somewhat mixed stance on crypto and Bitcoin as the executive referred to the crypto market as “Tulipmania” after Bitcoin sank to nearly $30,000 on May 19. Despite comparing the crypto industry to a financial bubble, Minerd is still bullish on Bitcoin in the long term, predicting earlier this year that BTC can potentially hit $600,000.



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