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The right side of the image features an underwater view of a majestic humpback whale, illuminated by beams of sunlight filtering through the ocean's surface. The whale is swimming upward toward the light, creating a metaphor for rising or emerging. On the left side, against a white background, there's the logo of CryptoTaxAudit and a large text title that says 'Let's Talk About TurboTax And Tax Compliance For Crypto Whales.' Below the title, an additional text snippet explains 'Learn how TurboTax and other tax programs fall short with crypto audit protection and how crypto whales get compliant with back crypto taxes.

crypto tax education Jan 25, 2023

TurboTax and other tax return preparation tools have become quite popular, but are they the best choice for crypto traders and investors? Experts believe they don't really take the best advantage of your filing options as a crypto owner, especially if you have experienced losses.

TurboTax and tax compliance.

Forty-five percent of Americans use Turbo Tax and other tax software packages. As this number continues to grow and we enter into a crypto age, the real question those Americans should be asking is, will these various software packages protect me from getting an IRS crypto audit? The answer is a bit dodgy.

TurboTax and others tout that they have an "audit guarantee" feature, which says if you get audited by the IRS, they will defend you against any calculation errors. That sounds fantastic! But, is it? Most crypto Americans are very unaware of how this TurboTax type guarantee works. And, it probably not what you think.

Does TurboTax protect you from an audit?

The answer is no. TurboTax and other tax calculation software packages don’t protect crypto traders from a crypto tax audit. TurboTax and other tax software packages protect themselves first, and then they protect you second when it comes to a crypto audit.

In an interview with Charlie Shrem on his podcast, Untold Stories, Shrem and I discussed how TurboTax and tax software packages do not protect crypto traders from an audit. Shrem pointed out that these audit guarantees are "stupid because anytime you do anything that can be answered by a Yes or No question, that audit guarantee goes away."

Those tax software packages are cool. I've used them in my younger years, and they're easy to find. But the thing is, it's what they don't do that’s important. Software packages such as TurboTax and others don't ask questions that they don't want to deal with. So, they don't protect you from those complex situations with their "audit guarantee.

They don't ask you about complicated things.

Have you heard of Ponzi scams? Suppose you are a victim of a financial scam. There's a whole tax treatment where you can get a break on a scam like that. Guess what? TurboTax, TaxAct, and others do not touch it in their tax software.

Why? It’s probably because they don't know how to ask the questions correctly to generate the right results to keep their audit guarantee safe. And so as a result, they don't mention anything about it, limiting your options for favorable tax treatment.

Once your crypto return starts to get complex, and trust me, all crypto traders have a complex return, TurboTax is not there for you.

Here’s another thing. Many of the lower-end professional tax software used by tax preparers do not support the FBAR form. Shrem reminded me again, "If you have anything related to complication or crypto, a lot of that audit guarantee goes away with TurboTax or other tax software programs.”

On top of that, the truth is there are not enough tax preparers with the crypto tax and law combination to help crypto traders. At this point, I'm baffled at why that is.

I've created tools that I can put in the hands of individuals to do an excellent job in a way that they can afford. Yet filing these forms isn't a straightforward process. At least these tools have the possibility of helping as many people as possible.

Are you worried about an IRS crypto audit?

Are you worried about the IRS auditing your crypto returns? Then you should have CryptoTaxAudit. They provide an IRS audit defense designed for the crypto owner.” - Charlie Shrem, Untold Stories

If a crypto trader goes to their accountant and the trader is dishonest with their accountant, and the accountant files the return, the accountant's not on the hook. The crypto trader is on the hook for lying.

Why are accountants afraid of crypto?

A lot of accountants and tax preparers are afraid to touch crypto returns, or they’re afraid to sign off on your crypto return from TurboTax or other software programs. A lot of this changed in 2019, when the question “Did you have cryptocurrencies?" was added to the tax forms.

Just one year later in 2020, the IRS released a draft version of the new Form 1040 for reporting personal income taxes. And in 2021, the IRS moved their enforcement of cryptocurrency taxation to the most prominent position possible in the form on the new 1040 Form, just after your name and address. For 2022, the virtual currency question was renamed “digital assets”, but the prominence remained the same. It’s literally the first question they ask.

As it’s in the most prominent place on Form 1040, nobody filing taxes can escape answering Yes or No to having cryptocurrencies. Accountants now have to ask the crypto question. And the accountant is on the hook to tell you. Unfortunately, most of them don't know what they're doing.

It is a scary time for doing your crypto tax returns because tax preparers have a few similar reactions to receiving them. Some of them simply check No and never bring up the topic. Some check Yes. Some dump you as a client if you check Yes because they don't want to get involved with crypto. And most put the entire burden on you to tell them what they have to file.Tax preparers are scared of crypto tax returns. There's going to be a lot of errors, and the IRS will have a field day.

The IRS is the money-making arm of the U.S.

The IRS is the U.S. government's money-making arm. As a business, they're likely losing money at a trillion dollars a year. To that end, the new IRS commissioner said he's going to ramp up enforcement. That means everybody needs to educate themselves.

"We already have so many negative stigmas in (the crypto) industry; we don't need the stigma that we don't pay our taxes. We don't need that." - Charlie Shrem, Untold Stories.

Who will the IRS go after?

The IRS will likely go after the low-hanging fruit first. They’ll go after some Bitcoin Whales, especially high-profile investors. Then they’ll use fear to drive the smaller traders into compliance.

Shrem agreed, "The IRS will go after someone who has a hundred million dollars or a fifty million dollar situation, and it will be a person that hid their taxes. That's what I'm feeling too".

The IRS will go after the crypto whales, the big guys. But the big guys will have negotiated settlements, and you won't know about them, but they'll go after some middle-sized crypto traders because they can create the fear of "Oh my gosh, the IRS came after somebody with just $100,000 of crypto."

How can you get compliant on your back taxes?

Charlie Shrem used himself as an example because of his felony (so-called “bitcoin’s first felon”), which makes him hypersensitive. He said he knows that he is on every list possible. “In a situation where someone is worried they look at my story, they look at me, and they say, "Well, I was very involved in crypto very early on; maybe I broke the law by mistake?”

People are worried that in the course of filing their tax returns, that a crypto error could be uncovered, even if it was by mistake. They are worried that their accountant must now report a crime. Is that the case?

Shrem added, "Even failing to file your return is a felony. So now someone's coming to you and saying, ‘Hey, I broke the law, I committed a felony, I didn't file.’ And you probably get a lot of people like that every day. You probably get people saying, ‘I haven't filed for five years.’” So what happens now?

So, I told Charlie Shrem, and I'll tell you too, the good news is the IRS loves money. If you fix your tax returns and come forward and send them some cash, they will likely be very nice to you. I have filed over 1,200 tax amnesty returns to help medium to large crypto traders, and I've had virtually a 100% success rate.

The IRS is happy to have people come into compliance. So everybody wins. But you need to come forward in good faith.

A brief crypto tax story.

I talked to a guy who is a well-known person, an influencer, in the crypto space. He told me that he hadn't filed his tax returns in several years. He thought that the tax system was a fraud, and the IRS had no right to tax his cryptos. That was his attitude.

Now he's worried because he's a celebrity. And here's the problem.

Once you take that attitude, it's hard to go back; it's hard to come back and do it the next year. It's hard to get current because you got so much to report since you haven't done before. This is the problem every trader will have who hasn't ever reported their cryptos.

Because Form 1040’s first question basically asks, did you have anything to do with cryptos. If you don’t answer that one correctly, they'll come after you.

How do you get into compliance?

If you’re a crypto whale, a crypto trader, or even a casual crypto investor, you need to get back into compliance. Now’s the time. And the answer is to use the tax amnesty rules.

Be proactive, file for tax amnesty, come forward; take your name off the list. It’s the list that Charlie Shrem, who served two years in prison, knows all too well.

DISCLAIMER: Opinions and perspectives of the author, host, and guests. It should not be construed as U.S. taxpayer advice. There are often multiple interpretations of tax law. Various strategies may be suited to specific individuals and for particular situations. Seek out professional tax, legal, or financial advice from CryptoTaxAudit or from other reputable companies.

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