Many Bitcoin owners have adopted a “Play dumb and hope for the best” strategy when it comes to taxes. But now that strategy—never a great idea at the best of times—is riskier than ever in light of a proposed change to next year’s tax forms.
The Internal Revenue Service revealed the change in a preview of the Form 1040 that every American uses to file their federal income tax. Now, right at the top of the form, below the address line, is a new yes/no question that asks if the filer has acquired an interest in virtual currency:
The proposed IRS change comes as the agency continues to ramp up scrutiny of Bitcoin and other cryptocurrencies. In some cases, the focus of the IRS has been criminal activity involving digital currency, while in others the agency has sought to identify those who fail to report profits from trading.
While millions of Americans own cryptocurrency accounts, a relatively small portion of them have reported income from them. In a lawsuit with cryptocurrency giant Coinbase, for instance, the IRS testified that only 807 individuals reported Bitcoin-related transactions in 2015.
In the last three years, Coinbase and other exchanges have provided more tax reporting tools but the number of filers remains relatively small. The owner of a firm specializing in crypto taxes told the Wall Street Journal that he estimates fewer than 150,000 crypto owners filed returns last year.
According to the Journal, which first reported the new IRS form, the change to the 1040 amounts to laying “a trap” for those who would feign ignorance of the reporting requirements—and is similar to approach the agency took to forcing Americans to disclose overseas income.
The aggressive new tactic by the IRS is