The IRS commissioner Chuck Rettig issued the agency’s FY19 updates last month, which included updates on compliance and education initiatives aimed at the emerging gig and crypto industries.
Publication 5382 was released in December to provide taxpayers with updates on the IRS’ FY19 goals. Of the six goals discussed in the report, goal two promised to “Protect the integrity of the tax system by encouraging compliance through administering and enforcing the tax code.” Updates related to the FY19 IRS enforcement campaigns in the gig and crypto industries were also included in this section of the report.
The IRS pointed out the question added to Form 1040 regarding the acquisition of disposition of virtual currency. Additionally, it cited the enforcement letters sent to over 10,000 taxpayers earlier this year. Some of these letters provided educational information and others served as penalty notices and demands for amended returns.
Payers of crypto income who are not reporting Forms 1099 should take caution. Notice 2014-21 laid out the tax information reporting requirements associated with crypto transactions along with the related IRC 6721 penalties for failing to comply with these requirements. While not every detail of every crypto transaction is clear, good faith tax reporting provides far more protection for your business than taking no action at all.
The gig economy
The IRS discussed the ongoing issue of independent workers understanding their self-employment tax obligations associated with the income they received during the year.
This issue was also addressed in an early 2019 report by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA initiated an audit in 2017 to assess compliance with the gig economy and associated self-employment related taxes (i.e., FICA, Social Security) and released its findings via the report. TIGTA found that self-employed taxpayers were contributing to the tax gap.
To aid in the enforcement of taxpayer compliance of gig payments, Form 1099-K is required to be filed with the IRS when a platform-worker receives at least $20k and paid over 200 transactions in the calendar year. In a sample of three gig payers, TIGTA found that 95 percent of gig workers would not have received Forms 1099-K due to the high reporting threshold and transaction limits. Since self-employment taxes are calculated based on earnings, it’s important for the IRS to match 1099 income to income claimed on annual income tax returns so that an independent worker can verify the self-employment taxes due as well.
Find out how Sovos can help your business comply with cryptocurrency tax reporting regulations.