Virtual currency, such as Bitcoin, continues to be a topic of interest for the IRS. Indeed, for the 2019 tax year, the IRS added for the first time a unique question to Schedule 1, Additional Income and Adjustments to Income, which asks: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency.” After the question, the taxpayer is required to check either “yes” or “no.” Predictably, there is no “maybe” box.
Continuing with this theme, the IRS now intends to ask even more Americans the same question for the 2020 tax year. That is, the same question above will now be asked on Page 1 of the Form 1040, U.S. Individual Income Tax Return. Because more Americans file Form 1040 than Schedule 1, the IRS’ intentions are clear—it intends to continue to seek more information regarding taxpayers’ holdings and dealings in cryptocurrency.
Notably, taxpayers who seek to offer collection alternatives to the IRS are also not immune. On the Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, it specifically requests the taxpayer to “[l]ist all virtual currency you own or in which you have a financial interest (e.g., Bitcoin, Ethereum, Litecoin, Ripple, etc.) If applicable, attach a statement with each virtual currency’s public key.”
In light of all these developments, a common question I receive from clients is whether someone can actually go to jail for checking the box “no” where, in fact, he or she should have checked the box “yes.” The answer is: YES.
Criminal Tax Laws.
There are a host of criminal tax provisions enacted and designed to keep taxpayers honest with their tax filings. For example, Section 7201 makes it a felony for any person to willfully attempt in any manner to evade or defeat tax imposed under the Internal Revenue Code (e.g., Title 26) or any payment thereof. Thus, to maintain a successful conviction under Section 7201, the government must show: (1) willfulness; (2) the existence of a tax deficiency; and (3) an affirmative act constituting an evasion or attempted evasion of tax. See, e.g., U.S. v. Bolton, 908 F.3d 75, 89 (5th Cir. 2018).
Generally, the statute’s terminology of “in any manner” has been construed broadly by the federal courts. See U.S. v. Daniels, 699 Fed. Appx. 469, 473 (6th Cir. 2017 (citing Spies v. U.S., 317 U.S. 492, 499 (1943)). Accordingly, false statements or the concealing of assets from the IRS can constitute...
