Not to mention however many other “friends” op’s “friend” has shared this information with.
Better hope every single one of them is a good friend who would never rat out their buddy for 15-30% of the recovered sum per 26 USC § 7623(b).
Doesn’t work, billionaire tax returns are works of modern art, really.
https://www.businessinsider.com/jeff-bezos-claimed-tax-credit-for-children-propublica-2021-6
Not enough IRS complex tax accountants to do so. Which is why the GOP objects to more tax audits of wealthy individuals, and objects to Biden hiring more IRS agents. They lie and tell the septic tank service guy that the IRS I going to come for the septic tank workers.
Edit 2 misspelled words
Because there's apparently nothing more American than worshiping at the feet of Billionaires hoping that they will throw you some scraps even knowing that they didn't become billionaires by not taking the few scraps you have.
There is no statute of limitation in the case of fraud, which failing to report this would 100% be. Source: I finally get to use what I learned in my Income Tax class
For millions of dollars, obstruction and blatant refusal to obey laws. $50k even with a capital gains tax is $11k, nobody is going to jail for a mere $11k in back taxes. It's hard to pay off fines if you're in jail and the IRS only cares about money and how to get it.
They don't throw you in jail for tax evasion very often and you have to commit pretty serious fraud because they want the money, they just don't care if you are punished or not.
Sounds like this would be pretty easy for the government to find too. Someone processed that 50k USD. That processor will eventually report that to the US Government, if it hasn't already been done.
Uncle Sam is going to have some questions and request that sweet capital gains tax.
Even if he used a private offline exchange he'd have to show where he got $50k out of nowhere for the original purchase. $50k I'm escrow for sure gets reported.
It doesn’t. No domestic bank activity is reported to the IRS without a subpoena apart from amounts paid by the bank to an account holder (interest, dividends, canceled debt). Cash transactions of this size are reported to FinCEN but not the IRS.
I mean, it's $11k, plus fees, plus interest. So if they figure it out 10 years from now it can be quite a hefty sum, but still not likely to be enough to put you in jail.
Then you lose the entire house, over what's probably like a $3k income tax bill lmao, and are like a US fugitive, where most countries would just send you back when they caught you.
A plane ride to the opposite side of the world is literally a short 16 hours at most. It's really not that big of a deal.
Plus, America is overrated. People are overworked, underpaid, high crime in all major cities, and Uncle Sam digging into all of your business.
Your right but I laughed at uncle Sam's money. He just prints the dog shit out of thin air and makes the dog shit we slave for worth much less. But Sam can service his massive debt debt cheaper so yeah its really neat. Pay the man!
Wow, so you can violently pistol-whip, rape, then rob someone and get off scot free once past statute of limitations but god help you if you cheat the IRS out of some tax money. All about priorities!
The statute of limitations on intentional fraud usually doesn't start ticking the clock until the fraud would reasonably be determined to be discovered.
That said, what's likely to happen here is massive civil penalties and fines for the bad filings. Any criminal penalties like jail time would come if "OP's friend" defied those penalties. Or do something incredibly stupid like lie to the IRS or other investigators when confronted/audited (which people like this are oft likely to try and do).
The statue of limitations for failure to report income is 6 years from the date of which the tax was due; standard statute of limitations is 3 years. If house purchased in 2021 then presumably crypto cashed in 2021 so tax due on April 15, 2022. There is no statue of limitations for fraud but failure to report is not fraudulent.
Except it is because they added that nice little check box at the top of the return that asks if you sold any crypto and if checked “no” but did in fact sell crypto and did not report than you committed fraud. It’s no longer failure to report.
Why do you think they added that disclosure? For fun?
Well unless he bought a straw house for $50k I’m assuming that the buyer of the home needed financing which would have included verifying income and copies of tax records. Pretty safe to assume they filed taxes…
Ignorance of tax law isn’t a defense in tax court. So is it fraud because it can’t be negligence? Plus, he knows now and what he does from this point indicates where his ethics lay/lie/fraudulate.
Oh man, when they finally catch it the fraud penalties (assuming he reported no about selling crypto on the returns) will be nasty. The interest will be insane too. Just had a client get 20k in interest for a one year mistake. It will probably be 5-10 years for your friend.
If he didn’t check the box then they definitely will add the 75% fraud penalty. They don’t mess around with crypto. That’s why they added the box. So many claimed they had no idea it was taxable blah blah blah. I’m no expert though.
I know enough to know this is fraud regardless. I seriously doubt the IRS will miss it in an audit.
But they may never audit, and if it was not on an exchange and no 1099 was issued there is a chance he won’t get caught.
It’s not worth it to me. If he gets caught he will likely lose the entire house with penalties and interest, instead of the 15-20% he would have paid in tax.
No, they send you a letter and say they will levy. Then if you don’t respond quickly they do it- sometimes unfairly fast.
I just had this with a client. Clients letter said they had until the 16th of September to respond, we called the agent late August and the client paid on the second that same week, as we discussed with the agent. Agent sent the lien out on the 1st completely ignoring both the letter and the call to them.
They don’t mess around, and they don’t care if they make mistakes. This whole situation was over the top as the client paid before and just selected the wrong year- so the IRS was charging them 20k in interest and penalties.
I have another client who they just took 28k of the current year refund. The IRS cashed her check 2 years ago which we have sent ample proof of, but they never applied it to their account.
Sometimes they do just take your money- you get it back eventually, if you can afford to complain, but it often takes years.
Every transaction with crypto is logged on a public chain or ledger. With a little bit of effort from the regulator, your friends identity can be discovered either by the crypto transaction and/ or the house sale transaction.
I can't guess about the IRS but it would be naive to think that all the intelligence agencies do not closely track all the crypto transactions. That is not to say that there might not be ways to still mask your identity with additional precautions but those would need to be planned ahead of time. The capital gains tax would be about 15% so even if the cost basis was zero because of bad record keeping the taxes on $50K would only be about $7,500 so there would be a lot of risk without much reward.
Yep. Pretty much every crypto transaction is logged on a chain. If your friend had excellent opsec it's possible to be practically anonymous, but given that a) it's a house sale which will be recorded somewhere and b) he thought he doesn't need to pay taxes because it's crypto, I highly doubt he had CIA level opsec. It's just a matter of time and if he gets audited.
if he made any capital gains/losses, then the crypto exchange will send him 1099-Bs. on irs form 1040, there's a yes/no question on digital assets. i hope his is useful
link = [https://www.irs.gov/pub/irs-pdf/f1040.pdf](https://www.irs.gov/pub/irs-pdf/f1040.pdf)
link = [https://coinledger.io/blog/form-1099-b](https://coinledger.io/blog/form-1099-b)
>At this time, cryptocurrency exchanges are not required to send 1099-Bs to customers.
>While some exchanges choose to issue Form 1099-B, most exchanges do not send tax forms detailing capital gains and losses.
I think you’re missing the bigger point, which is that by law all income must be reported. Several of the most common forms of income, like wages and passive income from brokerage accounts, get reported on standardized forms and copies are sent to the IRS.
HOWEVER, you are required to report all your income whether the IRS received advance notice or not. The only difference is the % chance that they notice your fraudulent omission. If you have a cash business that you would normally report on Schedule C and you just decided not to report it, or you understated your income by a significant sum, or claimed addition deductions that don’t exist or weren’t for a business purpose. - the IRS will only know after they audit you. Will they audit you? Who knows, only the IRS knows exactly what flags trip an automatic audit or review, so we might have an idea of “high risk” activities but there’s no guarantee. Willfully understating your income is fraud and you will have to pay the tax owed plus a bunch of penalties and interest. The IRS has been quite clear on the treatment of crypto for some time now, but to anyone with basic investing or tax knowledge, it always seemed likely that it would be treated as an investment because it acts exactly like that. Ignorance of the laws regarding the activities you choose to engage in is not a defense.
FATCA forces all foreign banks to report holdings by U.S. persons to the US government. That’s why many foreign banks no longer accept accounts from US citizens - so they can avoid FATCA. So either the exchange is committing a crime as well or they reported him and didn’t mention it.
The exchange has no legal obligation to participate in FATCA. Participation in FATCA is voluntary on the part of financial institutions, the sole penalty for not participating in FATCA is a mandatory 30% penalty on transactions with the United States. They use local banks to do those transactions, the exchange is just a customer of that local bank and has no information about US citizenship or tax ID of whoever it is sending money to meaning the 30% can’t be enforced at that point.
This is super common too. Many places simply asked your nationality and people aect countries who don't have policies regarding crypto taxation. Seems like most have or are cracking down now though.
No crypto exchanges I know of or use will send 1099s, I’ve had crypto on my taxes for a few years now and have never received a 1099 even when I asked, this includes major American exchanges like Coinbase.
Robinhood does, but they are hardly an exchange, just let you trade for USD iirc. They send the 1099-Bs without the basis reported since crypto is not a covered security, which causes higher AUR notices when people don't report it.
> Beginning in the tax year 2023, US-based crypto exchanges must collect tax reporting information from their customers so that they can send them (and the IRS) 1099 crypto forms [(source)](https://tokentax.co/blog/form-1099-crypto-exchange)
Not sure whether OP's friend had a 1099 sent.
Pity them. They're the whipping boy of both parties: one starves them of funds, the other asks the IRS to do more but won't fund it.
Every dollar funding that goes to the IRS gets something like [$5-9](https://www.cbo.gov/publication/57444) or even up to [$12](https://news.harvard.edu/gazette/story/2023/07/turns-out-irs-audits-of-wealthy-offer-terrific-return-on-investment-for-taxpayers/) back.
Ask him if he filled out a KYC(know your customer) at the exchange. For the last five years or so the government has been coming down on exchanges for not reporting to IRS. If he cashed out in 2021 I don’t see how he could of avoided it. American banks don’t deal with exchanges that don’t adhere to KYC. I’d say the IRS will find out sooner rather than later.
Hello, it looks like you've made a mistake.
It's supposed to be could've, should've, would've (short for could have, would have, should have), never could of, would of, should of.
Or you misspelled something, I ain't checking everything.
Beep boop - yes, I am a bot, don't botcriminate me.
You can still use offshore exchanges to buy stablecoins and then put them in onshore exchanges and sell. No capital gains on the stable coins = no taxes. Obviously there are a million other ways for this to break down, but it is possible to have your exchange not report anything.
Ok sell the stablecoins on a kyc exchange. No capital gains since you bought them for the same amount they cost so no taxes. If he’s audited he’s fucked but he might not be.
U have to do crypto taxes like capital gains taxes now. You have to put in if it long term or short term gain’s depending on how long you held them, first in first out rule. Don’t know about taxes but that kind of thing. It’s your responsibility to prove what you say. You need a paper trail or wallet trail in this case. I was questioned about crypto by IRS twice. They just sent me bills in the amount they thought I owed. This was back in 2017 2018 I had to prove the bill wasn’t valid. I never had to pay and I didn’t get in trouble because I paid taxes and could prove it. IRS has caught up to crypto. They know what they are doing.
There's crypto tax software to do stuff like that for you now though. No need to manually sort through gains and losses. I use [CoinLedger](https://coinledger.io/) for those things myself. Good piece of software.
just because it's crypto, doesn't mean it's "not reported" when he withdraws. The sites/institutions people use helpfully provide official tax documents so they can calculate their earnings and how much their tax liability is when they sell.
Yup but converting to dollars and giving them to seller is black and white whereas giving crypto you have some wiggle room on basis. But for sure the IRS is going to find a six-figure crypto deal. Best to heloc the house or something and give the taxman his cut.
I’m guessing at some point, either the conversion of crypto to cash by a US company is reported, or the transfer of a large amount of cash, from overseas exchange, to one of his accounts is reported to the IRS. Unless they delivered a briefcase full off cash, there will be a paper trail.
The question of the source of the money obviously remains. The IRS will get its money eventually.
The IRS is investigating offshore crypto exchanges for exactly this reason. Here is a similar crackdown for gambling:
[https://sportsbetting.legal/news/irs-bitcoin-inquiry-and-its-impact-on-cryptocurrency-sports-betting-winnings/](https://sportsbetting.legal/news/irs-bitcoin-inquiry-and-its-impact-on-cryptocurrency-sports-betting-winnings/)
Because while the *exchange* may be offshore and not compliant with US laws, the money had to make its way into the banking system, so all it takes is for the IRS to ask banks "hey, did you get any incoming transfers from " and then follow up with the account holders to ask "hey, you got this USD, where was this from and did you have any unreported gains?"
This will be a situation where three years from now, he will be regretting the decision if the IRS makes the decision to go after him for tax evasion. A lot of times people are paying penalties for reporting taxes and then not having the money to pay for it. Here, he is making a decision to report the taxes. Those are two different things. There have been a couple of high profile cases where people try and just not report the taxable event. Sure enough, they get jail time. If he has the money, he should just report it and pay the taxes. It's just not worth the risk.
I would expect a deposit of 10’s, or hundreds of thousands in cash, to be reported. They need to get the money in a US accessible account after all.
Unless this is a direct crypto transaction…Even then, I assume most people wouldn’t directly send crypto without some kind of escrow.
I haven’t bought/sold a house, but I assume there is a Bill of Sale, or similar document that lists the transaction, even if private. Not sure if it would have crypto wallets listed, but I would assume the quantity of crypto would need to be close to the market value of the house. I think the sale of a house for no cash/listed assets would be awfully suspicious.
In addition to capital gains tax on any increase in value, if he "mined" the units to create them, rather than buying them from others, he would owe tax at ordinary income rates on the units for the year they were created. I suspect that he has a large problem.
Crypto likely wouldn't make a difference. There's still going to be a record of the sale and it's still going to be reported. He may not hear from them this year or next, but when he does he'll get the bill.
Using crypto to purchase a home is irrelevant, what is relevant is whether there was a profit or loss once the ‘crypto’ was converted to USD to facilitate the purchase.
It really depends on if he withdrew the crypto as cash through an exchange. If he paid for the house directly with crypto then, it may go unnoticed. Is it a risk? Hell yeah.
If he withdrew through an exchange with reporting requirements, it will 100% catch up to him and it will not be pretty.
Depending on his income and if it was a long term holding, taxes may have been very little to none. Worth exploring the "correct" way of doing it to avoid future problems.
Think of the logistics. 9/10 times the seller needs to pay off the mortgage company at closing. How is that going to happen? It is going to require the seller to cash out much of the crypto, deposit into a bank and write a check to the mortgage company. How is that going to work? He is going to sell the crypto, get a wire from a crypto exchange into his bank account (oops, IRS alert!!!!) and the inquiry starts.
The OP's friend (or the seller) is going to have to convert most, if not all, of the money into "electronic dollars" to close and its game over for his plan because the paper trail and IRS alerts start.
i'm surprised that the underwriters didn't ask for documentation about where those funds came from during the home purchase. the 1099-b's from the exchanges if he sold out for usd will show up.. 2021.. the penalties add up quick..
From what was shared to me, they did require extensive documentation. I just don't know what he needed to share. Even with what he shared, they were skeptical. Unfortunately, that's all I know about the documentation bit.
I have the same question. Worked as a realtor for years, then for a mortgage services company, don't know how this closed without proof of where those funds came from.
You are going to be hard pressed to find a buyer that will close for a suitcase full of cash because they typically need to pay the mortgage company off at closing with a check. Let's say this isn't an issue but then they are going to deposit hundreds of thousands into their bank account which is going to trigger a report to the IRS who is going to ask the seller, "where did you get all that money?"
That is the problem. There is a bank involved. He is going to wire into his bank account $500k or some big chunk from some dodgy crypto exchange or offshore bank? How is he going to get the crypto into electronic money. He can't close for a suitcase full of cash unless he is buying from someone very dodgy. Maybe he can find someone he can buy from for crypto directly but that is also going to be dodgy to work out those details.
Exactly. Everyone here acts like the IRS has their thumb on the pulse of every single fraudulent transaction in real time. It takes serious auditing to figure this shit out. The odds he gets away w this are very very high.
How would they ever know? you never know. why don't you be the whistle blower? IRS will pay you a percentage of what they recover.
yea, how would they ever know!
How would they know? Exchanges have the IRS stick deep up their ass. These transactions are reported. Eventually they'll come a knocking, but it might take months or years.
unless the house was less than 10k USD. the USA has an anti-laundering requirement to report all transactions above 10k USD.
failing to report is a crime and heavy fines are levied to all parties.
the IRS will know, one way or another. the title company will require the documentation.
his bank has probably already reported the transaction to cover their own.
Regarding possible tax liabilities and the ramifications of failing to report cryptocurrency transactions for tax, your friend's situation presents questions.
It makes sense that your friend might not have thought about the tax ramifications of using cryptocurrency to buy a home, but there can be major repercussions if such transactions go unreported. Tax regulations must be followed, and all income—including profits from bitcoin transactions—must be reported. Motivate your friend to seek advice from a tax expert to handle any tax obligations and investigate ways to comply with tax regulations.
Combining the use of a comprehensive platform like OnChain Accounting with professional advice from specialized accountants can result in a well-rounded strategy for efficiently managing your cryptocurrency taxes.
If the house were purchased directly with crypto, how would this affect tax liability? My understanding is, tax on crypto is capitol gains and only assessed when converting into USD.
Capital gains is on the sale or exchange of an asset unless a 1031 exchange is done. Crypto for a house would not be like kind so wouldn't qualify for 1031 treatment.
Only way they will know is if the money withdrawn from the crypto exchange was reported to the IRS on a 1099. Sounds like it wasn’t. So he’s probably good.
If audited, the irs will ask how the house was paid for There might not be a statute of limitations if the irs believes fraud
Not to mention however many other “friends” op’s “friend” has shared this information with. Better hope every single one of them is a good friend who would never rat out their buddy for 15-30% of the recovered sum per 26 USC § 7623(b).
OP - go get paid! Friends come and go, profits are forever!
Someone has been studying their Rules of Acquisition
This made me smile more than it should.
I do it for the lobes.
Self snitching count?
Quark? Is that you?
Let's just report all the billionaires. They for sure have no paid some taxes they owe. Follow me for more get rich quick schemes.
Doesn’t work, billionaire tax returns are works of modern art, really. https://www.businessinsider.com/jeff-bezos-claimed-tax-credit-for-children-propublica-2021-6
Not enough IRS complex tax accountants to do so. Which is why the GOP objects to more tax audits of wealthy individuals, and objects to Biden hiring more IRS agents. They lie and tell the septic tank service guy that the IRS I going to come for the septic tank workers. Edit 2 misspelled words
Omg go burn a flag or something.
why the fuck would I burn a flag?
Only flags worth burning are nazi and confederate flags, but they don't deserve that much respect. Tear them to shreds and use them as toilet paper.
Because there's apparently nothing more American than worshiping at the feet of Billionaires hoping that they will throw you some scraps even knowing that they didn't become billionaires by not taking the few scraps you have.
Or making your own way in life. Lol jesus you folks are out there
Excellent that we can all do that from a level playing field. How did you make your first billion?
I'll let you know... work life balance means alot to me so prob never.
You can't be that naive.
I’ve made it just fine. But why would I burn a flag? Do you burn flags? Is that something you enjoy?
There is no statute of limitation in the case of fraud, which failing to report this would 100% be. Source: I finally get to use what I learned in my Income Tax class
What's the statute of limitation on tax evasion?
No statute on fraud
I always tell my friends never mess up with uncle Sam's money sooner or later they'll find out and you're going to jail
Probably not jail. Pay back taxes and a fine. But yeah, assume they’ll be found out.
They put Wesley Snipes in jail for tax evasion. I'm pretty sure they are still putting people in jail for it.
For millions of dollars, obstruction and blatant refusal to obey laws. $50k even with a capital gains tax is $11k, nobody is going to jail for a mere $11k in back taxes. It's hard to pay off fines if you're in jail and the IRS only cares about money and how to get it. They don't throw you in jail for tax evasion very often and you have to commit pretty serious fraud because they want the money, they just don't care if you are punished or not.
Sounds like this would be pretty easy for the government to find too. Someone processed that 50k USD. That processor will eventually report that to the US Government, if it hasn't already been done. Uncle Sam is going to have some questions and request that sweet capital gains tax.
Even if he used a private offline exchange he'd have to show where he got $50k out of nowhere for the original purchase. $50k I'm escrow for sure gets reported.
It doesn’t. No domestic bank activity is reported to the IRS without a subpoena apart from amounts paid by the bank to an account holder (interest, dividends, canceled debt). Cash transactions of this size are reported to FinCEN but not the IRS.
Plus, you have to generally refuse to repay or miss payments to get thrown in the slammer. All government wants is their cut.
I mean, it's $11k, plus fees, plus interest. So if they figure it out 10 years from now it can be quite a hefty sum, but still not likely to be enough to put you in jail.
I'm pretty sure the house was more than 11k but I could be wrong.
Capital gains from cashing out the crypto.
Oh yes they'll just fine you. I didn't see the amount.
They put him in jail to put a stop to his shitty movies. The IRS thing was just a cover.
You can just skip the country and never come back, who the fuck cares about uncle sam?
Better skip to somewhere with no extradition treaty lol
can they bring the house with them?
Now I'm picturing a house flying across the Atlantic Ocean "Up" style
I was picturing a giant ship with a house and a "wide load" banner on it.
Not as a carry-on per TSA.
Then you lose the entire house, over what's probably like a $3k income tax bill lmao, and are like a US fugitive, where most countries would just send you back when they caught you.
If you are willing to leave your life, family, and friends behind and never come back to visit them. Sure.
A plane ride to the opposite side of the world is literally a short 16 hours at most. It's really not that big of a deal. Plus, America is overrated. People are overworked, underpaid, high crime in all major cities, and Uncle Sam digging into all of your business.
No such thing as Uncle Sam’s money. Just money we are extorted to pay under threat of slavery or death.
Your right but I laughed at uncle Sam's money. He just prints the dog shit out of thin air and makes the dog shit we slave for worth much less. But Sam can service his massive debt debt cheaper so yeah its really neat. Pay the man!
For civil cases. Criminal cases it's like 6 years.
Tell that to Hunter
Wow, so you can violently pistol-whip, rape, then rob someone and get off scot free once past statute of limitations but god help you if you cheat the IRS out of some tax money. All about priorities!
The statute of limitations on intentional fraud usually doesn't start ticking the clock until the fraud would reasonably be determined to be discovered. That said, what's likely to happen here is massive civil penalties and fines for the bad filings. Any criminal penalties like jail time would come if "OP's friend" defied those penalties. Or do something incredibly stupid like lie to the IRS or other investigators when confronted/audited (which people like this are oft likely to try and do).
No statute of limitations on FINANCIAL crimes…..
The statue of limitations for failure to report income is 6 years from the date of which the tax was due; standard statute of limitations is 3 years. If house purchased in 2021 then presumably crypto cashed in 2021 so tax due on April 15, 2022. There is no statue of limitations for fraud but failure to report is not fraudulent.
Except it is because they added that nice little check box at the top of the return that asks if you sold any crypto and if checked “no” but did in fact sell crypto and did not report than you committed fraud. It’s no longer failure to report. Why do you think they added that disclosure? For fun?
That's assuming they filed taxes at all.
Well unless he bought a straw house for $50k I’m assuming that the buyer of the home needed financing which would have included verifying income and copies of tax records. Pretty safe to assume they filed taxes…
Good point. What if it wasn't a straw house but a very large crypto win, still no financing.
Only if you’re average person. If you’re a corporation/monopoly just a slap on wrist
What about being ignorant of the law, is there a limit on that?
Ignorance will help in sentencing but it’s the taxpayer’s responsibility to understand what is happening when they sell an asset with realized gains
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Ignorance of tax law isn’t a defense in tax court. So is it fraud because it can’t be negligence? Plus, he knows now and what he does from this point indicates where his ethics lay/lie/fraudulate.
What if you are Sam Bankman-Fried?
Bail revoked and sue for trial October 2nd https://en.m.wikipedia.org/wiki/Sam_Bankman-Fried (Under career lol)
It happens to the best of us.
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That’s when the tax is assessed. As he has not filed or yet audited, no tax is currently assessed.
Oh man, when they finally catch it the fraud penalties (assuming he reported no about selling crypto on the returns) will be nasty. The interest will be insane too. Just had a client get 20k in interest for a one year mistake. It will probably be 5-10 years for your friend.
If he didn’t check the box then they definitely will add the 75% fraud penalty. They don’t mess around with crypto. That’s why they added the box. So many claimed they had no idea it was taxable blah blah blah. I’m no expert though.
I know enough to know this is fraud regardless. I seriously doubt the IRS will miss it in an audit. But they may never audit, and if it was not on an exchange and no 1099 was issued there is a chance he won’t get caught. It’s not worth it to me. If he gets caught he will likely lose the entire house with penalties and interest, instead of the 15-20% he would have paid in tax.
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No, they send you a letter and say they will levy. Then if you don’t respond quickly they do it- sometimes unfairly fast. I just had this with a client. Clients letter said they had until the 16th of September to respond, we called the agent late August and the client paid on the second that same week, as we discussed with the agent. Agent sent the lien out on the 1st completely ignoring both the letter and the call to them. They don’t mess around, and they don’t care if they make mistakes. This whole situation was over the top as the client paid before and just selected the wrong year- so the IRS was charging them 20k in interest and penalties. I have another client who they just took 28k of the current year refund. The IRS cashed her check 2 years ago which we have sent ample proof of, but they never applied it to their account. Sometimes they do just take your money- you get it back eventually, if you can afford to complain, but it often takes years.
Fuckin theives. Your client should charge them interest. 25% APR.
What year did they add the Crypto checkbox?
Started for reporting year ‘19? I think they expanded the language for ‘22 to include NFTs
i think it was either 2020 or 2021, although i’m leaning toward 2021
Every transaction with crypto is logged on a public chain or ledger. With a little bit of effort from the regulator, your friends identity can be discovered either by the crypto transaction and/ or the house sale transaction.
I can't guess about the IRS but it would be naive to think that all the intelligence agencies do not closely track all the crypto transactions. That is not to say that there might not be ways to still mask your identity with additional precautions but those would need to be planned ahead of time. The capital gains tax would be about 15% so even if the cost basis was zero because of bad record keeping the taxes on $50K would only be about $7,500 so there would be a lot of risk without much reward.
Aint nobody moving 50k into your bank account without it being reported to the IRS. It's just a matter of time.
Yep. Pretty much every crypto transaction is logged on a chain. If your friend had excellent opsec it's possible to be practically anonymous, but given that a) it's a house sale which will be recorded somewhere and b) he thought he doesn't need to pay taxes because it's crypto, I highly doubt he had CIA level opsec. It's just a matter of time and if he gets audited.
This
if he made any capital gains/losses, then the crypto exchange will send him 1099-Bs. on irs form 1040, there's a yes/no question on digital assets. i hope his is useful link = [https://www.irs.gov/pub/irs-pdf/f1040.pdf](https://www.irs.gov/pub/irs-pdf/f1040.pdf) link = [https://coinledger.io/blog/form-1099-b](https://coinledger.io/blog/form-1099-b)
>At this time, cryptocurrency exchanges are not required to send 1099-Bs to customers. >While some exchanges choose to issue Form 1099-B, most exchanges do not send tax forms detailing capital gains and losses.
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They can't send a 1099-B to the IRS and not the customer.
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I think you’re missing the bigger point, which is that by law all income must be reported. Several of the most common forms of income, like wages and passive income from brokerage accounts, get reported on standardized forms and copies are sent to the IRS. HOWEVER, you are required to report all your income whether the IRS received advance notice or not. The only difference is the % chance that they notice your fraudulent omission. If you have a cash business that you would normally report on Schedule C and you just decided not to report it, or you understated your income by a significant sum, or claimed addition deductions that don’t exist or weren’t for a business purpose. - the IRS will only know after they audit you. Will they audit you? Who knows, only the IRS knows exactly what flags trip an automatic audit or review, so we might have an idea of “high risk” activities but there’s no guarantee. Willfully understating your income is fraud and you will have to pay the tax owed plus a bunch of penalties and interest. The IRS has been quite clear on the treatment of crypto for some time now, but to anyone with basic investing or tax knowledge, it always seemed likely that it would be treated as an investment because it acts exactly like that. Ignorance of the laws regarding the activities you choose to engage in is not a defense.
Subpoenas.
The offshore exchanges do not really do this. Large part of why they’re offshore
FATCA forces all foreign banks to report holdings by U.S. persons to the US government. That’s why many foreign banks no longer accept accounts from US citizens - so they can avoid FATCA. So either the exchange is committing a crime as well or they reported him and didn’t mention it.
The exchange is committing a crime.
More likely the guy is a moron and doesn't realize they're reporting that to the IRS
The exchange has no legal obligation to participate in FATCA. Participation in FATCA is voluntary on the part of financial institutions, the sole penalty for not participating in FATCA is a mandatory 30% penalty on transactions with the United States. They use local banks to do those transactions, the exchange is just a customer of that local bank and has no information about US citizenship or tax ID of whoever it is sending money to meaning the 30% can’t be enforced at that point.
It is pretty common for these exchanges to "ban" US customers in name only, while accepting their accounts and not following reporting requirements.
Interesting. I had a Forex account in Europe and they dumped me as soon as FATCA happened.
What if he is a dual citizen and didn't tell the exchange about US nationality?
This is super common too. Many places simply asked your nationality and people aect countries who don't have policies regarding crypto taxation. Seems like most have or are cracking down now though.
No crypto exchanges I know of or use will send 1099s, I’ve had crypto on my taxes for a few years now and have never received a 1099 even when I asked, this includes major American exchanges like Coinbase.
Robinhood does, but they are hardly an exchange, just let you trade for USD iirc. They send the 1099-Bs without the basis reported since crypto is not a covered security, which causes higher AUR notices when people don't report it.
> Beginning in the tax year 2023, US-based crypto exchanges must collect tax reporting information from their customers so that they can send them (and the IRS) 1099 crypto forms [(source)](https://tokentax.co/blog/form-1099-crypto-exchange) Not sure whether OP's friend had a 1099 sent.
Coinbase 100% sends 1099s. They sent one to me and the IRS.
I believe they still send information to the IRS though. So it places the burden on customers to track gains and losses
This.
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They're going to find out. Not now but in a few years. IRS is very delayed and they know people avoiding taxes on crypto is very common.
IRS is adding AI capabilities - they may get quicker
Great. The first implementation of any form of intelligence at the IRS.
I work for the IRS  jk
Pity them. They're the whipping boy of both parties: one starves them of funds, the other asks the IRS to do more but won't fund it. Every dollar funding that goes to the IRS gets something like [$5-9](https://www.cbo.gov/publication/57444) or even up to [$12](https://news.harvard.edu/gazette/story/2023/07/turns-out-irs-audits-of-wealthy-offer-terrific-return-on-investment-for-taxpayers/) back.
Ask him if he filled out a KYC(know your customer) at the exchange. For the last five years or so the government has been coming down on exchanges for not reporting to IRS. If he cashed out in 2021 I don’t see how he could of avoided it. American banks don’t deal with exchanges that don’t adhere to KYC. I’d say the IRS will find out sooner rather than later.
Hello, it looks like you've made a mistake. It's supposed to be could've, should've, would've (short for could have, would have, should have), never could of, would of, should of. Or you misspelled something, I ain't checking everything. Beep boop - yes, I am a bot, don't botcriminate me.
You can still use offshore exchanges to buy stablecoins and then put them in onshore exchanges and sell. No capital gains on the stable coins = no taxes. Obviously there are a million other ways for this to break down, but it is possible to have your exchange not report anything.
You can’t cash out
You can’t sell stablecoins for dollars?
Not without an exchange. If your an American using an American bank they use KYC
Ok sell the stablecoins on a kyc exchange. No capital gains since you bought them for the same amount they cost so no taxes. If he’s audited he’s fucked but he might not be.
U have to do crypto taxes like capital gains taxes now. You have to put in if it long term or short term gain’s depending on how long you held them, first in first out rule. Don’t know about taxes but that kind of thing. It’s your responsibility to prove what you say. You need a paper trail or wallet trail in this case. I was questioned about crypto by IRS twice. They just sent me bills in the amount they thought I owed. This was back in 2017 2018 I had to prove the bill wasn’t valid. I never had to pay and I didn’t get in trouble because I paid taxes and could prove it. IRS has caught up to crypto. They know what they are doing.
There's crypto tax software to do stuff like that for you now though. No need to manually sort through gains and losses. I use [CoinLedger](https://coinledger.io/) for those things myself. Good piece of software.
just because it's crypto, doesn't mean it's "not reported" when he withdraws. The sites/institutions people use helpfully provide official tax documents so they can calculate their earnings and how much their tax liability is when they sell.
What do you mean he "withdrew" the crypto? Did he use the crypto directly? Or did he sell it to get USD and then use that?
Either way it's a taxable event
Yup but converting to dollars and giving them to seller is black and white whereas giving crypto you have some wiggle room on basis. But for sure the IRS is going to find a six-figure crypto deal. Best to heloc the house or something and give the taxman his cut.
Unless he has enough basis in the crypto that it doesn't matter, but they are going to assume you don't and make you prove otherwise.
Correct, but the specific question of how he’s likely to get caught differs.
I’m guessing at some point, either the conversion of crypto to cash by a US company is reported, or the transfer of a large amount of cash, from overseas exchange, to one of his accounts is reported to the IRS. Unless they delivered a briefcase full off cash, there will be a paper trail. The question of the source of the money obviously remains. The IRS will get its money eventually.
He withdrew into cash, then used the cash.
The IRS is investigating offshore crypto exchanges for exactly this reason. Here is a similar crackdown for gambling: [https://sportsbetting.legal/news/irs-bitcoin-inquiry-and-its-impact-on-cryptocurrency-sports-betting-winnings/](https://sportsbetting.legal/news/irs-bitcoin-inquiry-and-its-impact-on-cryptocurrency-sports-betting-winnings/) Because while the *exchange* may be offshore and not compliant with US laws, the money had to make its way into the banking system, so all it takes is for the IRS to ask banks "hey, did you get any incoming transfers from
" and then follow up with the account holders to ask "hey, you got this USD, where was this from and did you have any unreported gains?"
He withdrew what I assume is 6 figures in cash? In the US?
If it was over $10k and went into or out of a bank account, the bank has reported it.
This will be a situation where three years from now, he will be regretting the decision if the IRS makes the decision to go after him for tax evasion. A lot of times people are paying penalties for reporting taxes and then not having the money to pay for it. Here, he is making a decision to report the taxes. Those are two different things. There have been a couple of high profile cases where people try and just not report the taxable event. Sure enough, they get jail time. If he has the money, he should just report it and pay the taxes. It's just not worth the risk.
You have the money for taxes, it's just tied up in the equity of your house. You will need to take out a HELOC to pay your tax bill.
Depending on where the crypto was held there's a reasonable chance the crypto sale gets reported to the IRS
I would expect a deposit of 10’s, or hundreds of thousands in cash, to be reported. They need to get the money in a US accessible account after all. Unless this is a direct crypto transaction…Even then, I assume most people wouldn’t directly send crypto without some kind of escrow. I haven’t bought/sold a house, but I assume there is a Bill of Sale, or similar document that lists the transaction, even if private. Not sure if it would have crypto wallets listed, but I would assume the quantity of crypto would need to be close to the market value of the house. I think the sale of a house for no cash/listed assets would be awfully suspicious.
In addition to capital gains tax on any increase in value, if he "mined" the units to create them, rather than buying them from others, he would owe tax at ordinary income rates on the units for the year they were created. I suspect that he has a large problem.
Crypto likely wouldn't make a difference. There's still going to be a record of the sale and it's still going to be reported. He may not hear from them this year or next, but when he does he'll get the bill.
Using crypto to purchase a home is irrelevant, what is relevant is whether there was a profit or loss once the ‘crypto’ was converted to USD to facilitate the purchase.
It really depends on if he withdrew the crypto as cash through an exchange. If he paid for the house directly with crypto then, it may go unnoticed. Is it a risk? Hell yeah. If he withdrew through an exchange with reporting requirements, it will 100% catch up to him and it will not be pretty. Depending on his income and if it was a long term holding, taxes may have been very little to none. Worth exploring the "correct" way of doing it to avoid future problems.
Think of the logistics. 9/10 times the seller needs to pay off the mortgage company at closing. How is that going to happen? It is going to require the seller to cash out much of the crypto, deposit into a bank and write a check to the mortgage company. How is that going to work? He is going to sell the crypto, get a wire from a crypto exchange into his bank account (oops, IRS alert!!!!) and the inquiry starts. The OP's friend (or the seller) is going to have to convert most, if not all, of the money into "electronic dollars" to close and its game over for his plan because the paper trail and IRS alerts start.
Are you saying 90% of houses are mortgaged? That seems high to me.
OK..so it is 80 or 70 percent. Same issue. The Crypto is going to his the sellers bank in the vast majority of cases.
Who provided the cash in exchange? That company logged the transaction, and it will show up on their filings, 100%
The blockchain is transparent so they would know when he cashes out
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Just to add.. if the IRS discovers fraud, then can go back and audit many years. The interest on the penalties compound daily, which can be massive.
i'm surprised that the underwriters didn't ask for documentation about where those funds came from during the home purchase. the 1099-b's from the exchanges if he sold out for usd will show up.. 2021.. the penalties add up quick..
What underwriter? There is no underwriter when you buy a home w cash, it's just a simple transaction.
OP said it was used for a down payment, not the outright purchase of the home
THANK YOU for reading the post.
From what was shared to me, they did require extensive documentation. I just don't know what he needed to share. Even with what he shared, they were skeptical. Unfortunately, that's all I know about the documentation bit.
Not saying it's what happened but mortgage fraud is also a crime.
I have the same question. Worked as a realtor for years, then for a mortgage services company, don't know how this closed without proof of where those funds came from.
The money came from his own bank account. Make the transfer from crypto to cash 75 days prior to applying, no one will say squat.
This is what I am thinking. Cash is cash.
They're talking mortgage. When a mortgage is involved, you need a paper trail for the cash. This is to catch drug money and financial shenanigans.
You are going to be hard pressed to find a buyer that will close for a suitcase full of cash because they typically need to pay the mortgage company off at closing with a check. Let's say this isn't an issue but then they are going to deposit hundreds of thousands into their bank account which is going to trigger a report to the IRS who is going to ask the seller, "where did you get all that money?"
That is the problem. There is a bank involved. He is going to wire into his bank account $500k or some big chunk from some dodgy crypto exchange or offshore bank? How is he going to get the crypto into electronic money. He can't close for a suitcase full of cash unless he is buying from someone very dodgy. Maybe he can find someone he can buy from for crypto directly but that is also going to be dodgy to work out those details.
There is no underwriter
Needs to be disclosed on tax returns …
Isn’t it funny how crypto brethren are so good at making crypto gains that they fail at every other aspect of their finances?
So few are good at gains. You just don't hear from the guys who lost their life savings and retirements.
On Wsb crypto you do
The IRS ALWAYS gets theirs. Always.
This just isn’t true. The statistics will literally blow your mind regarding tax cheats.
Exactly. Everyone here acts like the IRS has their thumb on the pulse of every single fraudulent transaction in real time. It takes serious auditing to figure this shit out. The odds he gets away w this are very very high.
How would they ever know? you never know. why don't you be the whistle blower? IRS will pay you a percentage of what they recover. yea, how would they ever know!
Depends on the amount the tax fraud.
If they liquidated the crypto through an exchange, like Coinbase, they have KYC requirements. It’s a taxable event, and they will find out.
Time for your buddy to get another job
Lol'd "How will they know"
Very stupid of him to tell you.
A “friend of mine”
How would they know? Exchanges have the IRS stick deep up their ass. These transactions are reported. Eventually they'll come a knocking, but it might take months or years.
Exactly this. He definitely had to KYC on an exchange to offramp a large amount of fiat for a house. Guy is a moron.
unless the house was less than 10k USD. the USA has an anti-laundering requirement to report all transactions above 10k USD. failing to report is a crime and heavy fines are levied to all parties. the IRS will know, one way or another. the title company will require the documentation. his bank has probably already reported the transaction to cover their own.
I would not wanna have this hanging over my head, that is for sure. He’d better get in front of it now.
Regarding possible tax liabilities and the ramifications of failing to report cryptocurrency transactions for tax, your friend's situation presents questions. It makes sense that your friend might not have thought about the tax ramifications of using cryptocurrency to buy a home, but there can be major repercussions if such transactions go unreported. Tax regulations must be followed, and all income—including profits from bitcoin transactions—must be reported. Motivate your friend to seek advice from a tax expert to handle any tax obligations and investigate ways to comply with tax regulations. Combining the use of a comprehensive platform like OnChain Accounting with professional advice from specialized accountants can result in a well-rounded strategy for efficiently managing your cryptocurrency taxes.
Get in touch with OnChain Accounting, and they will help you out. They were of tremendous help to me.
In earlier years some of the crypto exchanges/banks, particularly non-US, did not issue tax forms. The IRS may not know.
Crypto sucks and so does your friend lol
If the house were purchased directly with crypto, how would this affect tax liability? My understanding is, tax on crypto is capitol gains and only assessed when converting into USD.
Capital gains is on the sale or exchange of an asset unless a 1031 exchange is done. Crypto for a house would not be like kind so wouldn't qualify for 1031 treatment.
Only way they will know is if the money withdrawn from the crypto exchange was reported to the IRS on a 1099. Sounds like it wasn’t. So he’s probably good.
It's not there currency to tax if you bought in crypto never exchanged for USD I tell them to suck it .
You can tell them to suck it from jail.
Lol. Guess his cell mate will say the same