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Weekly IRS Roundup May 17 – May 21, 2021

by | May 24, 2021 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 17, 2021 – May 21, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

May 17, 2021: The IRS issued Revenue Ruling 2021-9, providing various prescribed interest rates for federal income tax purposes for June 2021.

May 17, 2021: The IRS issued Revenue Procedure 2021-24, providing procedures for individuals who are not required to file federal income tax returns to receive advance Child Tax Credit payments and third-round Economic Impact Payments under the American Rescue Plan Act of 2021 (ARPA), as well as 2020 recovery rebate credits under earlier coronavirus-related legislation.

May 17, 2021: The IRS issued a news release, reminding taxpayers that May 17 is the filing deadline for most individual income tax returns and summarizing various e-filing and extension options.

May 17, 2021: The IRS issued a news release, announcing that the first monthly payments under the Child Tax Credit, as expanded by ARPA, will be made to eligible families on July 15, 2021.

May 18, 2021: The IRS issued Notice 2021-31 and an accompanying news release, providing guidance on the temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance benefits, and the associated COBRA premium assistance credit, enacted by ARPA.

May 19, 2021: The IRS issued Notice 2021-33, providing the monthly update to certain interest rates used for pension plan funding and distribution purposes.

May 19, 2021: The IRS issued a news release, summarizing various tax benefits available to individuals experiencing homelessness, the rural poor and other underserved groups and urging employers and community groups to spread information about such benefits and assist such individuals in filing 2020 tax returns.

May 20, 2021: The IRS issued a news release, urging taxpayers who missed the recent May 17 tax-filing deadline to file their tax returns as soon as possible to obtain refunds or limit penalties and interest.

May 21, 2021: The IRS issued Notice 2021-32, providing the 2021 inflation adjustment factors and reference prices for the renewable electricity production credit, refined coal production credit and Indian coal production credit under section 45 of the Code.

May 21, 2021: The IRS issued an Action on Decision, announcing that it would not acquiesce to Machacek v. Comm’r, 906 F.3d 429 (6th Cir. 2018), which held that the economic benefits of a compensatory split-dollar life insurance arrangement may be treated as a distribution under section 301 of the Code.

May 21, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our Washington, DC, office for this week’s roundup.



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Weekly IRS Roundup May 10 – May 14, 2021

by | May 18, 2021 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 10, 2021 – May 14, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

May 10, 2021: The IRS issued Revenue Procedure 2021-25, announcing various inflation-adjusted amounts relevant to health savings accounts (HSAs) for calendar year 2022.

May 10, 2021: The IRS issued Notice 2021-26 and an accompanying news release, clarifying that unused amounts from dependent care assistance programs for 2020 that are carried over to 2021 or 2022 (pursuant to coronavirus-related legislation) remain excludible from gross income for those later years.

May 11, 2021: The IRS issued Revenue Procedure 2021-26, providing procedures under section 446(e) of the Code for certain foreign corporations to obtain automatic IRS consent to change to the alternative depreciation system of accounting under section 168(g) of the Code.

May 11, 2021: The IRS issued a news release, providing an overview of certain key tax provisions in the American Rescue Plan Act of 2021 (ARPA), including provisions retroactive to the 2020 taxable year.

May 12, 2021: The IRS issued a news release, announcing a ninth round of Economic Impact Payments consisting of nearly one million payments worth more than $1.8 billion, bringing the total amount of disbursements under ARPA to approximately 165 million payments worth approximately $388 billion.

May 13, 2021: The IRS issued a news release, announcing that, in response to recent disruptions to the fuel supply chain, it is waiving penalties for failure to make semi-monthly deposits of excise tax on the sale of dyed diesel fuel for highway use. The relief is retroactive to May 7, 2021, and is in effect through May 21, 2021, and the IRS stated that it is closely monitoring the situation and will provide additional relief as needed.

May 13, 2021: The IRS issued a news release, extending the deadline to apply for 2022 membership on the Taxpayer Advocacy Panel, a federal advisory committee formed to identify taxpayer concerns and make recommendations for improving IRS service, through June 1, 2021.

May 14, 2021: The IRS issued Announcement 2021-10, clarifying that the boundaries of qualified opportunity zones created under the Tax Cuts and Jobs Act are unaffected by the results of the 2020 decennial census.

May 14, 2021: The IRS issued a news release, announcing that victims of storms and tornadoes that occurred in Tennessee in late March and early April would have until August 2, 2021, to file individual and business tax returns and make tax payments.

May 14, 2021: The IRS issued a news release, announcing that it has commenced issuing refunds to taxpayers who paid taxes on 2020 unemployment compensation, compensation that ARPA later excluded from 2020 taxable income.

May 14, [...]

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Eighth Circuit Holds the Mayo in Tax Regulation Invalidity Case

by and | May 17, 2021 | , , ,

In the latest tax regulation deference case, the Eighth Circuit provided guidance to taxpayers and tax practitioners on the “analytical path” to resolve the question of whether a tax regulation is a valid interpretation of the Internal Revenue Code. The court held that the regulation was invalid in part because it unreasonably added conditions to the statutory requirements for qualified educational organizations, however, it was valid as to its interpretation regarding the permissible scope of the taxpayer’s activities to fit within the applicable statute. The opinion is noteworthy for its detailed examination of statutory and legislative history, judicial interpretations and agency position during legislation in its analysis of Congress’ intent.

Deference is one topic that captivates many, and tax cases referencing Chevron, Skidmore and Auer (and more recently Kisor) always grab attention. The latest deference case in the tax area is Mayo Clinic v. United States, No. 19-3189 (8th Cir. May 13, 2021). For some background on deference, including the district court proceedings in the Mayo Clinic case, see here.

In the Mayo Clinic case, the question was whether the taxpayer was a “qualified organization” exempted from paying unrelated business income tax (UBIT) on unrelated debt-financed income under Internal Revenue Code (Code) Section 514(c)(9)(C)(i). Answering this question required determining whether the taxpayer was an “educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activity are regularly carried on” within the meaning of Code Section 170(b)(1)(A)(ii). Relying in part on Treasury Regulation Section 1.170A-9(c)(1), the government asserted that the taxpayer was not a qualified organization because it was not an educational organization because its primary function was not the presentation of formal instruction (primary-function requirement) and its noneducational activities were not merely incidental to the educational activities (merely-incidental requirement). The district court – Mayo Clinic v. United States, 412 F.Supp.3d 1038 (D. Minn. 2019) – held in favor of the taxpayer and invalidated the regulation, holding that the primary-function requirement and the merely-incidental requirement were not intended by Congress to be included in the statute. The Eighth Circuit reversed and remanded the decision. Implementing the longstanding two-pronged deference test under Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984) and acknowledging recent precedent in Kisor v. Wilkie, 139 S.Ct. 2400 (2019), the Mayo Clinic court emphasized that the question before it was whether the government “stayed within the bounds of its statutory authority.” To answer this question, the court stated that to determine whether the statute was unambiguous required examining the statutory history and applying traditional tools of statutory construction. This led the Eighth Circuit to trace the evolution of the Code over more than a century, focusing on changes to statutory language, legislative history, agency positions during the legislative process and judicial interpretations of the law.

Based on this exhaustive analysis of the evolution of [...]

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Weekly IRS Roundup May 3 – May 7, 2021

by | May 10, 2021 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of May 3, 2021 – May 7, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

May 3, 2021: The IRS issued a news release announcing the opening of the application period for 2022 grants under the Low Income Taxpayer Clinic (LITC) program, an IRS program to assist organizations in providing pro bono representation to taxpayers who are low income or speak English as a second language (ESL) in federal tax disputes.

May 4, 2021: The IRS issued a news release as part of National Hurricane Preparedness Week and National Wildfire Awareness Month, reminding taxpayers of certain best practices to minimize the effect of natural disasters on tax compliance.

May 5, 2021: The IRS issued a news release announcing an eighth round of Economic Impact Payments consisting of more than 1.1 million payments totaling more than $2 billion, bringing the total amount of disbursements under the American Rescue Plan Act of 2021 (ARPA) to approximately 164 million payments worth approximately $386 billion.

May 5, 2021: The IRS issued a news release announcing the development of Projected Contract Award Date, a web app designed to increase efficiency in procurement by using statistical models to forecast the date on which contracts will be awarded.

May 6, 2021: The IRS issued Notice 2021-29, announcing that the reference price under section 45K(d)(2)(C) of the Code, which is relevant for certain Code sections regarding oil and gas production, is $37.07 for calendar year 2020.

May 6, 2021: The IRS issued Notice 2021-30, announcing that the applicable percentage under section 613A of the Code, which is used to determine percentage depletion for oil and gas produced from marginal properties, is 15% for calendar year 2021.

May 6, 2021: The IRS issued a news release reminding calendar-year tax-exempt organizations that annual Form 990 information returns and certain other filings are due on May 17, 2021.

May 7, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our Washington, DC, office for this week’s roundup.



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Finding John Doe, Part II: IRS Secures Another Victory to “Root Out” Virtual Currency Tax Noncompliance

by , , and | May 7, 2021 | ,

The Internal Revenue Service (IRS) has scored another significant victory in its rapidly increasing virtual currency tax enforcement efforts. On May 5, 2021, the US District Court for the Northern District of California entered an order authorizing the IRS to serve a John Doe summons on popular cryptocurrency exchange, Payward Ventures Inc. d/b/a Kraken (Kraken). Specifically, the court’s order grants the IRS permission to serve a John Doe summons on Kraken in order to obtain information on US taxpayers who conducted the equivalent of at least $20,000 in total transactions for each year from 2016 to 2020.

If the IRS follows its playbook from the Coinbase summons, its victory here and with the Poloniex summons (upheld by a court in Massachusetts a few weeks ago), will likely result in thousands of US taxpayers receiving a letter from the IRS regarding their virtual currency transactions. As noted in its response to the court, over the past few years the IRS has learned a great deal about analyzing these transactions and is in possession of information from foreign virtual currency exchanges it’s also analyzing. This victory, coupled with the IRS’ increased knowledge of virtual currency transactions, is a big step in its efforts to, as stated in the IRS’ court filing, “root out tax noncompliance.”

As we previously noted in “Finding John Doe: IRS Steps up Enforcement Efforts to Take the Anonymity Out of Virtual Currency,” the court ordered the government to submit a response explaining its need for the information requested in its summons to Kraken. The government’s response indicates that the IRS has made significant progress in its analysis of summoned data from other cryptocurrency exchanges, such as Coinbase, and its ability to follow leads in the cryptocurrency marketplace. The court’s order approving the summons significantly reinforces the strength of the IRS’ crypto pursuit. These efforts are not solely focused on identifying tax noncompliance at a single exchange like Kraken but to identify the conduct for individuals transacting in cryptocurrency with Kraken accounts who may have additional accounts at other exchanges.

In citing its need for additional information to the court, the IRS expressly stated that in its experience from processing the Coinbase summons information, it has learned that taxpayers will use aliases, false addresses, post office boxes, fictitious entity names or other means to disguise their true identity. Taxpayers who create and use false information are more likely to evade their taxes, the IRS argued. The summons approved by the court requires Kraken to produce extensive records and data regarding its accountholders. Among other things, the summons requires Kraken to produce the following for each US-based account with at least $20,000 in annual transactions:

  • Account registration records and user profile information, including name, date of birth, taxpayer ID number, physical address, email address and telephone number
  • History of any IP addresses used to access the account
  • Payment [...]

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IRS Releases Guidance on Cryptocurrency Hard Forks

by , , and | May 6, 2021 | ,

On April 9, 2021, the Internal Revenue Service (IRS) released Chief Counsel Advice memo 202114020 (Hard Fork CCA), which details the potential tax consequences for taxpayers who held Bitcoin prior to the August 1, 2017, Bitcoin hard fork. While the Hard Fork CCA concerns the taxation of a particular cryptocurrency transaction, it has additional significance because it adds to the limited guidance available regarding the proper taxation of cryptocurrency more generally.

IN DEPTH

A cryptocurrency hard fork occurs when the blockchain on which cryptocurrency transactions are recorded permanently splits. The holder of the cryptocurrency generally has no control or notice that the hard fork is about to occur. The result is two separate blockchains with two separate sets of rules for recording transactions.

Bitcoin underwent a hard fork on August 1, 2017, and resulted in two separate sets of protocols for Bitcoin, as well as a new cryptocurrency called Bitcoin Cash. The result of this hard fork was that individuals holding Bitcoin in a distributed ledger now held a unit of Bitcoin Cash for each unit of Bitcoin previously held.

The Hard Fork CCA reached two conclusions concerning the Bitcoin hard fork. First, it determined that a taxpayer who received Bitcoin Cash because of the hard fork has gross income pursuant to Internal Revenue Code (IRC) section 61. Second, it determined that the date of receipt and fair market value of the income depends on when the taxpayer obtains dominion and control over the Bitcoin Cash. The Hard Fork CCA relies on the statutory language of IRC Section 61(a)(3) and the well-established case law of Commissioner v. Glenshaw Glass Company (348 U.S. 426, 431 (1955) in reaching this result. Those sources define gross income as “all income from whatever source derived,” and provide that all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion are included in gross income. The Hard Fork CCA also concludes that an impacted taxpayer gains dominion over Bitcoin Cash when they have the ability to sell, transfer or exchange the Bitcoin Cash.

Despite the fact that the Hard Fork CCA deals specifically with the consequences of the Bitcoin hard fork, the dearth of IRS guidance on the taxation of cryptocurrencies means the Hard Fork CCA will likely have broad importance to taxpayers who invest in other cryptocurrencies and similar digital assets. Most taxpayers hold cryptocurrencies through a cryptocurrency exchange platform. Coinbase, for example, which recently underwent a highly publicized initial public offering (IPO) and IRS summons for information concerning its participants, is one of the most popular cryptocurrency exchanges. (Additional detail regarding the Coinbase summons is available on our Tax Controversy 360 blog.) After a hard fork, some exchanges immediately adopt the new cryptocurrency and permit its use on the exchange; however, others only do so after a period of evaluation, if ever. The Hard Fork CCA takes the position that a taxpayer who privately holds their Bitcoin using a private key to [...]

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Weekly IRS Roundup April 26 – April 30, 2021

by | May 3, 2021 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 26, 2021 – April 30, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 26, 2021: The IRS issued Revenue Procedure 2021-23, making superseding changes to earlier Revenue Procedures related to the Child Tax Credit under section 24 of the Code, the Earned Income Credit under section 32 of the Code and the Premium Tax Credit under section 36B of the Code in order to reflect statutory amendments made by the American Rescue Plan Act of 2021 (ARPA).

April 26, 2021: The IRS issued a news release reporting the results of its March 2021 inaugural National Virtual Settlement Month, an IRS-coordinated nationwide initiative to provide pro bono legal advice to pro se US Tax Court litigants.

April 27, 2021: The IRS issued corrections to final regulations published in December 2020 regarding the elimination of the deduction for expenses associated with certain employer-provided transportation and commuting benefits under section 274 of the Code.

April 27, 2021: The IRS issued a news release, describing various electronic services it provides and urging taxpayers and tax professionals to use such services to speed up the processing of tax returns, payments and refunds.

April 28, 2021: The IRS issued a news release announcing a seventh round of Economic Impact Payments consisting of nearly two million payments totaling more than $4.3 billion, bringing the total amount of disbursements under ARPA to approximately 163 million payments worth approximately $384 billion.

April 29, 2021: The IRS issued a news release, providing information and resources to assist with tax compliance by gig economy workers and taxpayers who claimed unemployment compensation in 2020.

April 29, 2021: The IRS issued a news release, reminding taxpayers of the availability of tax-filing extensions upon request and listing certain categories of taxpayers who automatically obtain extensions without request.

April 30, 2021: The IRS issued Announcement 2021-8, listing attorneys, Certified Public Accountants (CPAs) and other practitioners who have received disciplinary sanctions for violating the regulations governing practice before the IRS.

April 30, 2021: The IRS issued a news release announcing the release of updated 2021 versions of Schedules K-2 and K-3 for Forms 1065, 1120-S and 8865. The updated Schedules are intended to provide greater clarity regarding the reporting of certain international tax items with respect to pass-through entities.

April 30, 2021: The IRS issued a news release announcing that it is now accepting grant applications by eligible organizations under the Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) programs, which provide tax assistance services to elderly taxpayers and underserved communities, respectively.

April 30, 2021: The IRS released its weekly list of written determinations (e.g., [...]

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Weekly IRS Roundup April 19 – April 23, 2021

by | Apr 26, 2021 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 19, 2021 – April 23, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 19, 2021: The IRS issued a news release announcing the establishment of a new office, the IRS Office of Promoter Investigations (OPI), which will address promoters of abusive tax avoidance transactions, such as certain syndicated conservation easements and micro-captive insurance arrangements.

April 20, 2021: The IRS issued a news release reminding taxpayers of common filing errors that could delay the processing of returns and refunds.

April 21, 2021: The IRS issued a fact sheet and an accompanying news release, providing details about small business tax credits available under the American Rescue Plan Act of 2021 (ARPA), including credits for the cost of providing leave for employees who are unable to work because of COVID-19 and credits for the cost of providing leave for employees to receive, or recover from, COVID-19 vaccinations.

April 22, 2021: The IRS issued Revenue Procedure 2021-20 and an accompanying news release, providing a safe harbor for certain businesses that received COVID-related Paycheck Protection Program loans and did not deduct the associated expenses for the 2020 taxable year. In response to recent legislation permitting the deduction of such expenses, the Revenue Procedure provides that such businesses may deduct such expenses for the 2021 taxable year in lieu of filing an amended return for the 2020 taxable year.

April 22, 2021: The IRS issued Revenue Procedure 2021-21, waiving the residence requirements to qualify for benefits under section 911 of the Code for the 2020 taxable year, with respect to certain individual taxpayers who departed from Iraq after March 25, 2020.

April 22, 2021: The IRS issued a news release announcing a sixth round of Economic Impact Payments consisting of nearly two million payments totaling nearly $3.4 billion, bringing the total amount of disbursements under ARPA to approximately 161 million payments worth more than $379 billion.

April 23, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Le Chen in our Washington, DC, office for this week’s roundup.



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IRS Extends Use of Digital Signatures for Certain Forms until End of 2021

by , and | Apr 23, 2021 |

The list of Internal Revenue Service (IRS) forms that can be digitally signed continues to grow. On August 28, 2020, the IRS issued a memorandum indicating that it would accept the use of digital signatures on various IRS forms because of the restrictions involved with the COVID-19 pandemic. In September 2020, it announced the addition of several more forms. Then, on April 15, 2021, the IRS announced it is extending the authorization to a large number of IRS forms until December 31, 2021. The IRS has not specified which digital signature product tax professionals must use but has advised that there are several commercial products available.

The current list of IRS forms that can be digitally signed are:

  • Form 11-C, Occupational Tax and Registration Return for Wagering
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit
  • Form 637, Application for Registration (for Certain Excise Tax Activities)
  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return
  • Form 706-A, U.S. Additional Estate Tax Return
  • Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions
  • Form 706-GS(D-1), Notification of Distribution From a Generation-Skipping Trust
  • Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations
  • Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts
  • Form 706, Schedule R-1, Generation-Skipping Transfer Tax
  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return
  • Form 730, Monthly Tax Return for Wagers
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations
  • Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation
  • Form 1120-H, U.S. Income Tax Return for Homeowners Associations
  • Form 1120-IC DISC, Interest Charge Domestic International Sales — Corporation Return
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts
  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies
  • Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B)
  • Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship
  • Form 1128, Application to Adopt, Change or Retain a Tax Year
  • Form 2678, Employer/Payer Appointment of Agent
  • Form 3115, Application for Change in Accounting Method
  • Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
  • Form 4421, Declaration — Executor’s Commissions and Attorney’s Fees
  • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes
  • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues
  • Form 8038-G, Information Return for Tax-Exempt Governmental Bonds
  • Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales
  • Form 8283, Noncash Charitable Contributions
  • Form 8453 series, Form 8878 series and Form 8879 series regarding IRS e-file Signature Authorization Forms
  • Form 8802, Application for U.S. [...]

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Finding John Doe: IRS Steps up Enforcement Efforts to Take the Anonymity Out of Virtual Currency

by | Apr 21, 2021 | , , ,

The Internal Revenue Service (IRS) is stepping up its virtual currency enforcement, and taxpayers who have engaged in a cryptocurrency transaction should immediately assess any potential tax implications as the IRS has recently issued two John Doe summonses to popular exchanges. These are the first it has issued in about three years, sending a very clear signal that the IRS is ready to tackle what it believes to be a continuing noncompliance. A US Federal District Court in Massachusetts upheld the summons issued to Circle Internet Financial Inc., including the popular cryptocurrency exchange Poloniex, while a US Federal Court for the Northern District of California required the government to submit a response explaining its need for the information requested in its summons to Kraken. (See: In re Tax Liability of John Does, No. 21-cv-2201, ECF No. 8 (N.D. Cal. Mar. 31, 2021)).

Filed on April 14, 2021, the government’s response provided numerous examples of how the data received in the Coinbase summons required additional requests in order for the exchange to locate actual taxpayers. The response argued that the need for multiple follow-ups defeated the purpose of the summons. It also described how information in Kraken’s possession, such as accountholder telephone numbers and email addresses, will facilitate the IRS’s ability to utilize relevant cryptocurrency platform data in its possession that was received from other sources relating to foreign-based cryptocurrency exchanges. Noting the potential for abuse by an accountholder, the response provided an example of an individual falsifying their identity as the basis for its need for complete account history in order to catch these issues. In addition, the response stated, “[m]atching the IP addresses for Kraken users to IP addresses and other data points in the IRS’s information will allow the IRS to link substantive account information from multiple sources for a single individual taxpayer and make a more accurate initial determination of whether that individual is in compliance with the internal revenue laws.”

It remains to be seen how the court will react to the government’s response. What is clear, though, from the response and the accompanying affidavit is that the IRS has made significant progress in its analysis of this data and its ability to follow leads. As a result, now is the time for individuals involved in these transactions to consult a tax professional to determine if they have any tax liability or potential exposure, including criminal exposure. After the Coinbase summons, the IRS issued 10,000 letters to taxpayers regarding virtual currency transactions. In the wake of these summonses, and potentially others, it is only a matter of time before the IRS reaches out to thousands of other taxpayers.

It is also clear that the enforcement arm of the IRS is working very closely with its counterparts around the world. The need for email addresses and phone numbers mentioned above to use foreign data certainly drives this point home. Even more so, as a precursor of things to [...]

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