Latest / TFTC: A Bitcoin Podcast / #731: Fixing Broken Bitcoin Tax Policy with Andrew Gordon

Transcript

#731: Fixing Broken Bitcoin Tax Policy with Andrew Gordon · TFTC: A Bitcoin Podcast

• 0:00
  You've had a dynamic where money has become freer than free.
• 0:10
  We talk about a Fed just gone nuts.
• 0:13
  All the central banks going nuts.
• 0:16
  So it's all acting like safe haven.
• 0:18
  I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins.
• 0:25
  In the world of fiat currencies, Bitcoin is the victor.
• 0:28
  I mean, that's part of the bull case for Bitcoin.
• 0:31
  If you're not paying attention, you probably should be.
• 0:36
  Andrew Gordon, welcome to the show, sir.
• 0:39
  Well, thank you for having me. I'm excited to be here.
• 0:42
  I'm excited to have you. And like I was just mentioning, I feel fortunate to get some of your time here at the tail end of March.
• 0:50
  It is, I'm sure, busy season for you as we approach April 15th.
• 0:55
  And we're sitting down today to talk about the intersection of Bitcoin, crypto and accounting.
• 1:02
  And for anybody who's listening or watching and is unaware, Andrew is the managing attorney at Gordon Law Group.
• 1:09
  He has both a JD and a CPA.
• 1:12
  He's clerked at the IRS Office of Chief Counsel and chaired an IRS fraud trial.
• 1:17
  And he's been focused on Bitcoin and crypto taxes since 2014 with over a thousand clients served.
• 1:24
  And you made a bit of a wave a few weeks ago flagging an audit file or an audit survey that the IRS is sending out to Bitcoin and crypto holders when they're being audited.
• 1:38
  And it's asking for a lot of information and puts potential and puts individuals at potential risk of perjury, if I understand correctly.
• 1:47
  Is that true?
• 1:49
  Yeah, yeah, that's right.
• 1:50
  And like you said, Marty, I've been working in crypto tax since 2014, which feels like a lifetime in crypto, although it was only a little over 10 years ago.
• 2:01
  And although we've got an administration that's very pro-crypto, what we've seen over the last couple of years, especially, is more and more crypto audits.
• 2:11
  And what we're talking about is most recently the IRS, even though there's all this movement towards regulatory clarity and pro-crypto legislation, that the IRS is now using this very extreme form.
• 2:26
  In fact, a form like nothing I've seen in the last 10 years working in crypto or even just working in IRS audits that is extremely detailed, two pages, listing out different exchanges, but requiring a yes or a no next to each one, dates that they're used.
• 2:44
  But the part that's most concerning about this new form is the potential implications.
• 2:50
  It requires a signature under penalties of perjury.
• 2:54
  So if you get it wrong, they could be criminally charged with perjury.
• 3:00
  And that's just bringing this to a new level, truly like nothing we've seen before.
• 3:06
  And what is it about the particular sort of ask that the IRS is making and the threat of perjury that's different?
• 3:14
  Is it an extension beyond what they would typically do outside of Bitcoin and crypto?
• 3:20
  Yeah, well, I think one of the first problems is just the scope.
• 3:23
  Typically, if you're being audited, you're being audited for a specific year, single year or certain years that they specify.
• 3:31
  And ask for information on those years.
• 3:34
  This form asks for you to answer about your crypto activity from the beginning of any activity all the way through the end of the audit year.
• 3:43
  So it's basically opening up a magnifying glass to everything that you've done and potentially expanding that audit into other years by just answering this form.
• 3:55
  But we've helped clients over the years with IRS audits, even outside crypto, auditing their small businesses, just individual tax returns.
• 4:06
  And typically, if the IRS wants to know what bank accounts you use, they ask you.
• 4:11
  There's an information document request.
• 4:14
  Identify the bank accounts you've used, not under penalties of perjury, not a there's a two page list of every single bank.
• 4:22
  Tell me what years you've ever used it, because if you answer that wrong, you make an honest mistake.
• 4:27
  Now you're in a dispute about your intent.
• 4:30
  Was that honest mistake or not?
• 4:32
  Those types of things don't exist outside of crypto.
• 4:34
  Right. With bank accounts, it's what banks did you use?
• 4:37
  So in a crypto audit, what they could simply do is ask, which crypto exchanges did you use?
• 4:44
  Answer that question in writing.
• 4:46
  That's standard.
• 4:47
  Having a form like this that has all of these details where you have to check yes or no.
• 4:55
  And the problem is confusion.
• 4:59
  A lot of these different exchanges, they've changed names over the years.
• 5:03
  the formal name that they're potentially using, maybe not even really a name that you even heard
• 5:10
  of before. You check the box, no, but really should have been yes. And the people online have
• 5:16
  said, well, look, if it's a unintentional or misunderstanding, then you didn't necessarily
• 5:22
  commit perjury. Well, I'd never want to be into a dispute with the IRS or the Department of Justice
• 5:28
  of whether or not I made an honest mistake, right?
• 5:31
  You're now already in a problem.
• 5:35
  So there's just, it's creating all these additional risks
• 5:38
  for taxpayers where if there's an unfriendly IRS
• 5:43
  in the future, an administration that doesn't like crypto
• 5:46
  wants to weaponize this information,
• 5:49
  they've got statements, perjury statements,
• 5:52
  potentially that can be weaponized
• 5:54
  against the everyday taxpayer.
• 5:56
  So what is the first thing you tell a client when they receive this form?
• 6:01
  What are the top, like, you should do this, you should not do this?
• 6:08
  Well, number one, if you haven't retained counsel, you should.
• 6:13
  People call us all the time, think they could take on the IRS on their own.
• 6:17
  Some cases, maybe you can.
• 6:19
  But this is not one of them.
• 6:21
  if you're under audit, crypto related, and especially most of the people we talk to.
• 6:27
  And just last week had someone reach out to us that didn't report crypto on their taxes,
• 6:33
  now being audited. Or very common, they reported some of it. Maybe their US exchange,
• 6:39
  maybe parts of it, maybe what they cashed out, now being audited. So the number one thing is
• 6:44
  make sure that you have representation and you have that attorney client privilege to talk
• 6:49
  through these risks so that they can understand what is the actual exposure? Are there years of
• 6:56
  unreported income and gains? Did you do your best, but you just missed some? Or did we just leave it
• 7:03
  all off? And depending on, to begin with, the scope and the potential exposure that drives the
• 7:11
  strategy on how to respond to this. Overall, one of the options always is just respond to the IRS
• 7:19
  Fill out this form as best as you can. But in many cases, that is not a preferential option,
• 7:28
  that trying to work out with the IRS a different way to answer the questions,
• 7:33
  perhaps just directly to an IDR, an information document request.
• 7:40
  There's other ways. So number one is make sure you have representation. And then once you have
• 7:45
  that representation, go through your situation, and then identify the options based on that
• 7:51
  that best fit you. Maybe it's cooperation to some extent, maybe it's no cooperation at all,
• 7:57
  but it really depends on the risks. What's the extent of the amount of people
• 8:04
  who are being pulled into these types of audits? And I guess the frequency,
• 8:08
  you've been in this for 12 years now, it's been increasing, decreasing,
• 8:12
  as it depend on the administration?
• 8:15
  What we've seen is a steady increase in IRS audits.
• 8:20
  Despite the pro-crypto administration, despite the IRS generally having less enforcement,
• 8:28
  less people, there has been, in our experience, a steady increase in crypto audits.
• 8:34
  And we expect this, unfortunately, to only increase this year, next year, and in coming
• 8:40
  years because the IRS is getting more information than ever before on U.S. crypto trading activity.
• 8:49
  Historically, it has been almost completely up to the taxpayer to report. The IRS will have to
• 8:55
  issue summonses, enter into information sharing agreements to get this kind of data.
• 9:02
  Now with 1099DA reporting, which started with tax year 2025, all U.S. exchanges are reporting to the
• 9:09
  IRS, all of the trades, all of the sales that occur. So now the IRS is having line-by-line
• 9:15
  transaction data of all the sales on U.S. exchanges. And although one may think that,
• 9:21
  well, this is just limited to U.S. exchanges, it now gives them the breadcrumbs to identify
• 9:27
  the other activity, to see the transfers in from your non-U.S. exchanges. There's just so much
• 9:33
  information that the IRS is going to be receiving. What we expect is that there will be not only
• 9:41
  more audits, but more just IRS notices automatically being sent. There's articles about how the IRS is
• 9:49
  using now AI to identify people for audits. We expect that that's going to increase, especially
• 9:55
  with all this new tax reporting that's happening, that the IRS is going to take that information,
• 10:00
  send notices, send tax bills, send audits in the coming years.
• 10:06
  Yeah. And the 1099 DA, not only the exchanges reporting your transactions in a given tax year
• 10:15
  to the IRS, but they have to assume a cost basis of zero, correct? And so it introduces this problem
• 10:24
  of maybe being overtaxed because the exchanges are just running with the assumption that you
• 10:31
  mined Bitcoin when it was first launched in 2009 or something like that.
• 10:35
  Yeah, you're absolutely right. Crypto is unlike anything in the modern financial world,
• 10:42
  especially when it comes to tax reporting with stocks, other securities. You get this wonderful
• 10:48
  tax report at the end of the year, shows you if you traded on Robinhood or wherever it may be,
• 10:53
  You get a tax form. It shows you what you sold, what you bought it for, your gains or losses.
• 10:59
  You plug it into TurboTax, and away you go. With crypto, that form historically has not existed.
• 11:06
  It's on us to get all of our transaction data, pay a professional like us, or use the crypto tax
• 11:12
  software to generate those results. Treasury and the IRS, in their infinite wisdom, mandated for
• 11:20
  2025, a new tax form, Form 1099-DA, attempts to solve this problem, but also gives the IRS a lot
• 11:28
  of information towards enforcement. But the problem with crypto is very few people just buy
• 11:35
  and sell on one exchange They buying on one place transferring to another bringing it to their cold storage wallet splitting it in half There so much movement And with that it nearly impossible without professional or third software
• 11:51
  to trace your cost basis or what you originally bought it for.
• 11:56
  This new tax form that's being issued this year for tax year 2025,
• 12:03
  the IRS has required that exchanges report your sales or your sales price
• 12:08
  for proceeds, what you sold it for, but not your cost basis, in part because the exchanges are
• 12:14
  struggling to get that data. But the IRS said, well, this year, just tell us what it was sold
• 12:20
  for. The problem now is that it's on the taxpayers. It's on all of us. They figured it out, right?
• 12:26
  Exchange is going to do it. So now we got to do it, right? The software out there struggles to do
• 12:31
  it. So we've got to do it. And the IRS is seeing those sale prices. And if you don't fill in that
• 12:37
  cost basis, it's assumed as zero, which means that whatever you sold it for is a complete gain,
• 12:44
  potentially even a short-term gain, which then heavily taxed paying a substantial amount of tax
• 12:51
  that you really shouldn't because you don't have that cost basis information.
• 12:57
  Yes. And especially maybe not last year, but this year, if the price stays depressed,
• 13:03
  going to want that cost basis so maybe you can report a loss on your on your uh holdings if uh
• 13:08
  if you had to sell below where you bought it from it is uh it is insane how invasive invasive it has
• 13:14
  become but this isn't the only um tax problem that we're dealing with in bitcoin and crypto i mean
• 13:19
  you mentioned um on i've been following you on x and you've been on the hill uh advocating for
• 13:27
  forward to minimus tax exemption, which could solve some of these problems, too, and also give
• 13:32
  people a bit of breathing room when it comes to using this as a day-to-day money.
• 13:39
  Yeah, no, absolutely. We all know crypto is the future of commerce. Whether it's using Bitcoin or
• 13:49
  stablecoin, you need to be able to transact with crypto without having to have record-keeping
• 13:56
  requirements. If I've got to have a notepad or an app tracking every time I buy a cup of coffee
• 14:02
  with crypto and what I bought it for in the gains, that pushes away use. I mean, it's just
• 14:09
  backwards. It doesn't make sense. And that's what we're living in right now. I've got a client and
• 14:15
  we recorded a video. We had to literally fill up a banker's box, a big cardboard box of transaction
• 14:23
  data and ship it to the IRS because the file was too large to e-file, it too many transactions.
• 14:30
  Now, what did this all add to? Tens of thousands of dollars, right? But the amount of transactions,
• 14:36
  because every penny has to be reported to the IRS. Every penny transaction has to be reported
• 14:43
  with gain or loss calculated. It's absurd. It's keeping people from using it. And for a lot of
• 14:50
  clients, it's even pushing them overseas. If you have to determine where you're setting up your
• 14:56
  crypto company, you can have U.S. obligations where every penny's got to be reported or other
• 15:02
  countries where there's a much more logical tax system. And so, yes, we need changes, especially
• 15:10
  for things like de minimis, the record keeping on that alone. It's not even so much about paying
• 15:17
  taxes on those amounts, but just having to account for every single dollar that you spend,
• 15:23
  it's just outrageous. It really is. It really is. What in your mind would be
• 15:30
  a reasonable de minimis tax exemption price level? There's been some draft legislation in DC.
• 15:41
  Senator Lummis has drafted legislation.
• 15:45
  I believe it's got a $5,000 aggregate.
• 15:50
  And somewhere around there, I think is reasonable.
• 15:53
  What we're looking for is an amount where when we're transacting with crypto, that we
• 16:01
  don't have to do all that record keeping.
• 16:03
  If there's large amounts being spent, I think we all understand, right?
• 16:08
  But when we're just trying to make everyday purchases or we're paying gas fees, paying fees on our transactions, it's this outrageous result where if you're paying a fee, now there's a tax on that and you've got to report that in itself.
• 16:25
  We just need simplification overall.
• 16:27
  So I think it's a lot less about the aggregate amount than that we need just a way to have a simplified way to report these small transactions.
• 16:37
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• 18:47
  for 25% off a ticket. I'll see you there. And so you've been on the hill. I mean, I was supposed
• 18:53
  to record with you in person last week, but schedules got misaligned and weren't able to sit
• 18:58
  down in person, what's it been like interacting with politicians on the Hill? Are they receptive
• 19:05
  to this? Is it a lot of handholding and Bitcoin 101 and explaining how these things work or
• 19:11
  are more and more representatives and senators beginning to understand what's lying before them?
• 19:18
  Yeah, there has been incredible progress very quickly. And my day-to-day job is working with
• 19:26
  clients, tax reporting, handling audits, criminal investigations, seeing what really is involved
• 19:33
  with tax reporting for crypto in the United States. But over the last couple of years,
• 19:38
  we've brought these stories to D.C., having conversations with policymakers about how
• 19:44
  crypto is actually used, the potential for a chiropractor in Florida, for a Uber driver
• 19:54
  in North Carolina to generate life-changing wealth, but at the same time having these
• 20:00
  incredibly difficult tax situations, which are just crazy. And over the last couple of years,
• 20:09
  what I've seen in DC is a shift from what is crypto to how can we legislate effectively
• 20:17
  to make sure crypto stays in the U.S., which is incredibly refreshing.
• 20:24
  The last decade, we've had administrations trying to kill crypto.
• 20:28
  We've advised clients countless times on leaving the country with their crypto businesses
• 20:33
  or even individually expatriating because of the climate that we're in.
• 20:38
  We now have people, we have senators, congressmen who want to have legislation that benefits
• 20:45
  crypto, keeps it in the United States. One of the most positive parts of the conversation
• 20:53
  has been the focus on taxes, especially. Crypto taxes, it's not the sexiest topic,
• 21:02
  right? No one loves to talk about tax, right? Except I do. I love tax. But overall, people,
• 21:07
  generally, you're at a party and you start to talk about tax, you're not going to be the life
• 21:13
  of the story. But at the same time, taxes impact all of us. Every single crypto investor, every
• 21:19
  person watching this video in the US has to report crypto on their taxes. And many of them have
• 21:25
  stories of the difficulty of IRS notices, of just trying to report, not knowing how to report.
• 21:33
  And there's now been more attention and focus on the tax issues specifically. It sounds like after
• 21:41
  clarity and market structure is that the attention is going to shift to crypto taxes,
• 21:46
  that the administration recognizes that crypto taxes are a problem. We need to fix it.
• 21:51
  I talk often about the comparison of crypto to opportunity zones. Opportunity zones are this
• 22:01
  tax break that Congress passed several years ago. And since then, there have been pages and pages,
• 22:08
  thousands of pages of guidance, of cases about opportunity zones. Yet 20,000 people,
• 22:15
  by some estimates, last year took advantage of it. Very small group. Crypto, on the other hand,
• 22:20
  we have millions of people participating in crypto. Something like 10 documents from the IRS on
• 22:26
  clarity. The government, the policymakers, people, and treasury that I've spoken to
• 22:33
  understand this problem. They want to find solutions. And that's a big shift from the
• 22:40
  conversations that I had even a year or two years ago. So what I'm seeing is that there is focus on
• 22:47
  these actual issues. And hopefully, after we get done with clarity, that we start to actually see
• 22:53
  more emphasis on legislation to address these problems. Yes. And so, I mean, we talked about
• 23:00
  de minimis and obviously the low-hanging fruit tax changes that could be made to make it easier
• 23:07
  for Bitcoiners just to go about their day without having to worry about the IRS coming down to them.
• 23:13
  When it comes to the 1099 DA and this HDAF form that they're sending out during audits,
• 23:19
  what changes would you like to see there, if any?
• 23:21
  Well we need people at the IRS that are informed about crypto and want to put in place policy that brings people into compliance generates revenue for the government while at the same time doesn create fear in the everyday
• 23:42
  crypto investor of what happens if they come forward, what happens in an audit, how do I make
• 23:48
  sure an audit is done fairly and gets to adjust result, not data that can be weaponized now or in
• 23:56
  the future towards other goals. So forms like this form should not be part of an audit.
• 24:05
  Criminal investigation or more severe situations, I think that potentially, but for an everyday
• 24:13
  crypto investor, everyday audit, having forms like this. Also, even just the tools the IRS
• 24:21
  is using in audits. We need to come from a place of understanding crypto and wanting to bring in
• 24:28
  compliance and get to the right result rather than just viewing every crypto investor as a criminal.
• 24:35
  So I think having people in place at the IRS policy that starts putting clarity on some of these issues so that the auditors have less discretion, but also getting rid of forms like this, it's just not necessary.
• 24:53
  Yeah, I think one of the main reasons why it made a big splash, obviously, people were thinking about all the exchanges that they may have used in the past that may not exist anymore.
• 25:03
  I think, oh, that's going to be a massive headache.
• 25:06
  But the other big one is the privacy intrusion, particularly for individuals holding Bitcoin and other crypto assets and self-custody using hardware wallets like Ledger, Trezor, using something like MetaMask.
• 25:20
  And I think the strongest reaction I saw when you posted the forum was, wow, they're really trying to tag and bag where Bitcoin is sitting.
• 25:31
  And I think that is an important conversation that needs to be had is what right do individuals have to privacy over their financial assets, especially in a world and with these transparent ledgers that that exists now with Bitcoin.
• 25:46
  Yeah, no, absolutely. I think even personally, one of the most surprising things about this form was that it wasn't just centralized exchanges. They want to know about wallets. They want to know about DeFi, even just self-custody wallets, potentially that there aren't any transactions on.
• 26:03
  And we have a right to privacy. And then the government has been recognizing more and more so the need for privacy with cryptocurrency. And when it's just sharing information like this, it creates a lot of risks and problems for the industry overall.
• 26:25
  what's the uh what's like the worst case you've seen somebody who thought they were doing
• 26:31
  everything by the book got caught up in an audit and still um got caught in a little compliance
• 26:37
  trap oh gosh um oh well we've got a client that did his best to report advanced trader
• 26:48
  trading thousands of times per year,
• 26:52
  but that's not necessarily anything unusual.
• 26:55
  He did his best to report,
• 26:58
  used professional crypto tax software to report.
• 27:03
  Under audit, the IRS took all his transactions,
• 27:07
  threw it in the software that they use.
• 27:11
  And they have, let's just say it's over $75 million
• 27:15
  is what they think his gains are.
• 27:18
  Now, the actual number, likely in the order of millions, but not 75 million.
• 27:23
  And now we've got an uphill battle of trying to argue to the IRS why their calculations are incorrect.
• 27:30
  But what we've seen in many audits, and this is just an example of it, is that they're using outdated software.
• 27:36
  They don't understand distinctions like wrapping, like entries into liquidity pools, even simple things, stable coins.
• 27:47
  that stable coins are actually tied to a dollar.
• 27:50
  And I don't need to prove that I paid a dollar for it.
• 27:52
  They're actually a dollar, pretty close to it,
• 27:55
  not worth the fight over 99 cents.
• 27:57
  IRS wants to say it's 99 cents, go for it.
• 27:59
  You want to say it's a dollar one, fine.
• 28:01
  But they're saying it's zero is your cost basis.
• 28:05
  But overall, we've got several audits
• 28:08
  where they think the gains are just drastically higher
• 28:12
  than what they actually are.
• 28:14
  And we now have to argue and show why that's incorrect.
• 28:19
  This has taken going to appeals, sometimes even tax court.
• 28:24
  One story that less in terms of dollar, but I think perhaps more shocking, the client didn't report his stablecoin sales.
• 28:34
  He had, I think it was about $200,000 of stablecoins that he sold.
• 28:40
  Didn't report it on his taxes.
• 28:42
  The IRS audited him, issued a notice and said, well, if you didn't report any cost basis,
• 28:49
  you didn't report on your taxes, it's zero cost basis.
• 28:52
  As a result, he's got a $70,000 tax bill.
• 28:55
  We had to take that to tax court to argue to the IRS that stablecoins actually were
• 29:02
  dollar pecked, that it's not a 100% gain.
• 29:07
  So to me, that was an example of something that was just absolutely absurd.
• 29:11
  You shouldn't have to hire an attorney, go to tax court,
• 29:15
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• 29:18
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• 29:20
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• 31:23
  How much time do these audits typically take up?
• 31:28
  Months to years.
• 31:31
  Lovely. Lovely. It's, you know, Andrew, I'm not going to lie. Somebody who's been observing the rampant fraud that is that is happening with our with our tax dollars.
• 31:43
  It's a bit frustrating to see that the IRS is this ardent about targeting people in Bitcoin and crypto or just targeting anybody in general for audits when the federal government is taking those tax dollars and just furiously putting it into programs that are being pillaged by overt fraudsters.
• 32:03
  And yes, they're starting to catch them, but it seems to me at least that they've been able to get away with overt pillaging of public systems, public benefit systems for quite some time now.
• 32:19
  Right.
• 32:19
  You know, I hear every day from crypto investors who want to pay their fair share.
• 32:27
  The industry, despite what some policymakers view it, we want to pay our taxes.
• 32:34
  We want to pay the fair share.
• 32:36
  We just want to know what the rules are.
• 32:38
  And we need a path where we're not afraid of audits.
• 32:40
  We're not afraid if we do our best that they're going to penalize us or drag us through an audit for years.
• 32:45
  But unfortunately, there just has not been a good path towards that.
• 32:51
  There hasn't been a way for people to come forward, know what they owe, pay that tax.
• 32:56
  And that's something that we desperately need.
• 32:59
  Whether you're in favor of this administration or not, what we do know is that tax revenue is vital.
• 33:08
  And the crypto industry, eventually, we're going to all want to cash out and buy our islands and Lambos.
• 33:15
  when Bitcoin hits a million dollars. I don't know about you, but that's my price. When it's a
• 33:20
  million dollars, then I think it's time for the island. But that's what we're all waiting for.
• 33:26
  But we need to have a system where we can come forward, pay our taxes, and it's just
• 33:30
  unfortunately not been the way. It hasn't. And you've been advocating for a voluntary
• 33:37
  disclosure program. What would that look like? Yeah, that's correct. And to me, this is a no
• 33:44
  brainer. So win-win. I got a call yesterday from someone hasn't filed their taxes since 2017
• 33:52
  because he made a lot in crypto in 2017. It was a bull market. 2018 crashed, made a lot.
• 33:59
  And he's afraid that if he comes forward, files his taxes, reports his crypto, he's going to be
• 34:05
  audited or even criminally investigated. Now he doesn't have any or very little. He's lost much
• 34:10
  of it. But he's afraid that if he comes forward, he's going to have an investigation, have an audit.
• 34:16
  And he's afraid of that. And that's been his situation for years. As a result, he can't buy
• 34:22
  a house because he hasn't filed his taxes. All these results, all these repercussions,
• 34:27
  there needs to be a way where crypto investors can come to the IRS, file their old years of taxes,
• 34:36
  report their crypto as best as they can, right? There are crypto exchanges that you can no longer
• 34:42
  access your data, but the best that you can, and then pay the tax, maybe even a small penalty,
• 34:49
  a reduced penalty, and move on and have some sort of assurance from the IRS that you're not going to
• 34:55
  be criminally investigated in the future. A program like this makes sense. It would drive
• 35:02
  billions of dollars for the federal government. It would allow people to finally pay their taxes,
• 35:09
  not be unfair have cost basis that reported And what we at right now is this inflection point where the IRS is going to start receiving all this 1099DA information And what are they going to do
• 35:22
  with that? They can either do nothing or they can do audits or investigations.
• 35:28
  Every investor that is receiving a 1099DA that hasn't reported crypto in the past is now going
• 35:35
  to be sitting with a decision. Do I go back and try to report in the past? Do I ignore those
• 35:40
  earlier years? Do I say zero cost basis? It's a big mess. Maybe you're sitting here and you don't
• 35:45
  even know what I'm saying. You just know it's a mess. A program like a voluntary disclosure program
• 35:50
  would be a way for these people to come forward. There's been precedent for this in the past.
• 35:58
  About 20 years ago, the IRS realized that people were putting money offshore into bank accounts,
• 36:05
  Swiss bank accounts, not realizing that they had to report that on your U.S. taxes.
• 36:10
  In fact, in the U.S., you've got to report your Swiss bank accounts.
• 36:13
  You've got to pay tax on the interest.
• 36:14
  People just didn't know that.
• 36:16
  The rules weren't very clear.
• 36:17
  It wasn't a lot of education.
• 36:19
  The guidance wasn't great.
• 36:21
  The IRS created a program called the Offshore Voluntary Disclosure Program, where people
• 36:27
  could come forward, in fact, with full amnesty, pay your tax, no penalties, no investigations,
• 36:33
  just pay your tax.
• 36:34
  there's been precedent over the years in other areas other than crypto for these types of programs.
• 36:42
  And what we're seeking is the same thing for crypto. There are countless people who want
• 36:48
  a program like this. We just need a path forward for this to happen.
• 36:54
  In your experience, putting the IRS agent head on, what do they perceive as like the lowest hanging
• 37:02
  fruit out there to trigger an audit of an individual? Is it not filing your taxes for
• 37:09
  a number of years and filing it one year and out of the blue, you're reporting all these
• 37:16
  crypto holdings? Is it simply you make a lot of money? They're trying to target people over a
• 37:23
  certain wealth bracket. What's the go-to trigger here? The unfortunate news to begin with, and I'm
• 37:32
  just trying to scare people out there. But what we've seen over the last few years is that the
• 37:38
  IRS sees the crypto industry as low hanging fruit. Even been testimony about this. Crypto industry
• 37:45
  largely has not paid their taxes, especially with Bitcoin hitting over $100,000. There's no question
• 37:52
  to a lot of people in government or the IRS, there are people that have a lot of money that
• 37:57
  They have not paid their taxes. So overall, the unfortunate news is the crypto industry has been a big target of enforcement.
• 38:04
  When I started my practice over 10 years ago, crypto was starting to be part of it in 2014.
• 38:11
  But it wasn't wasn't all what we did. We help people with other types of audits.
• 38:16
  In fact, in the beginning, there's mostly other types of audits. Now our practice is almost exclusively crypto audits because there's just so much demand.
• 38:26
  there's so many crypto audits happening. What we see as some of the common factors in these audits
• 38:33
  is often no crypto reporting at all, despite clear indications that there's crypto using U.S.
• 38:42
  crypto exchanges, some of them even reporting over the years to the IRS. Another being that
• 38:49
  They just reported the U.S. centralized exchanges, but the IRS has, through John Doe summonses, through agreements with places like Binance, have gotten data that suggests that there's other exchanges or other things out there to report.
• 39:08
  What the IRS is very bad at knowing is how much.
• 39:14
  What are the dollar amounts?
• 39:15
  Because crypto, it's people that are trading.
• 39:18
  You could have $10,000 of crypto that looks like a million dollars of transactions if you're trading all day long.
• 39:25
  And that's why sometimes they target people who don't have substantial amounts of gains, but just have a lot of activity because it looks like there's just a lot going on.
• 39:37
  Audits often begin because the IRS has some information that's inconsistent with what's on your tax return.
• 39:45
  And the IRS is getting more and more and more information that they could then use and cross-reference against your taxes.
• 39:54
  It makes sense.
• 39:55
  Are traders bottom of the low-hanging fruit for the IRS typically?
• 40:01
  I guess so, yes.
• 40:04
  Yeah.
• 40:04
  It's fascinating stuff.
• 40:06
  What advice do you have?
• 40:08
  We're approaching April 15th here.
• 40:11
  We've got, what have we got?
• 40:13
  seven, 22 days until back season. Anybody who's listening to this saying, oh, crap,
• 40:20
  I've not been checking the boxes on the list that Andrew is laying out here. What is your advice to
• 40:27
  them? Well, let's start with the current year. 2025 taxes due April 15th. If you used a U.S.
• 40:36
  exchange in 2025, they should have issued you a 1099 DA form. There's a couple exchanges that are
• 40:44
  late, to say the least, on issuing those forms, but you should have received one. If you haven't,
• 40:51
  the obligation is on you to go find it, download it online, make sure that you use it to file your
• 40:58
  taxes. That form is getting reported to the IRS. It needs to be consistent with what's on your taxes.
• 41:05
  Don't ignore that form.
• 41:08
  Even if you didn't, again, get it in the mail, but you know you used the U.S. exchange, go try to download it.
• 41:15
  Work with a professional or use a crypto tax software to input the cost basis into all the missing spots on that 1099DA form.
• 41:26
  This process is going to take time.
• 41:28
  It's not easy.
• 41:29
  One of the biggest suggestions that I have to people out there is file an extension for your taxes.
• 41:37
  Taxes are due April 15th, but you can extend that to October 15th, six months, by filing an extension.
• 41:44
  It's automatically granted.
• 41:46
  It will give you the time to get all your records together, make sure that the 1099 is properly reported on your taxes.
• 41:53
  This is not an extension to pay.
• 41:55
  Your tax payment is still due April 15th.
• 41:57
  15th. So if you think you're going to owe something, you should make a payment and then file your
• 42:02
  extension. But overall, one of the best things you can do right now, especially if you have earlier
• 42:08
  years that you didn't report on your taxes, is file that extension. Then work with a professional
• 42:15
  to get the earlier years caught up, the current year, get it all calculated, file one time
• 42:22
  correctly. We've worked with countless people over the years that have used do-it-yourself
• 42:27
  software, tried their best to fill in gaps, and then get audited. The amount that you will spend
• 42:34
  having to deal with that is exponentially more than just hiring a professional trying to do it
• 42:38
  right their first time. And if you didn't report those earlier years, it makes sense to talk to
• 42:45
  someone to see which year should you report. There are statutes on some of these years. I'm not in
• 42:52
  favor of paying the IRS the maximum possible, right? No one wants to pay the most, right? But
• 42:59
  we need to pay the proper amount and make sure that we're doing things to not be targeted or
• 43:06
  audited by the IRS. And assessing how many years to go back, how far can they actually audit you?
• 43:12
  So these are all important decisions to have.
• 43:15
  But overall, you can't ignore crypto taxes.
• 43:19
  You can't just say, hey, it happened last year.
• 43:23
  I'm going to start reporting going forward the right way.
• 43:27
  You can still be audited for several years backwards.
• 43:32
  Awesome.
• 43:32
  And then in terms of aiding your efforts on Capitol Hill and the advocacy for sensible tax policy, what should anybody who's listening do?
• 43:42
  in terms of helping get more sensible legislation across the line.
• 43:47
  Yeah.
• 43:48
  What has been surprising and very positive to me is the policymakers want to hear stories.
• 43:56
  They want to understand how we're being impacted by crypto, by tax policy, by these audits.
• 44:05
  Reach out to me.
• 44:06
  Share your story.
• 44:08
  Let me know how crypto taxes have impacted you.
• 44:12
  We also want to make sure that as policy is written in D.C., that it's not just the big players, especially with clarity.
• 44:21
  There are only so many voices on policy in D.C. on the Hill.
• 44:26
  You hear kind of the same stories happening, the same policy points being advocated for.
• 44:34
  As things shift to crypto taxes, which impacts all of us, what we are fighting to make sure happens is that all of our voices are heard.
• 44:42
  the everyday investors, small businesses, not the big crypto Wall Street companies.
• 44:48
  I won't mention them.
• 44:49
  But if you look at Clarity, it's overwhelmed by certain voices.
• 44:55
  But crypto is not that necessarily.
• 44:57
  It's all of us.
• 44:58
  It's all of us trying to build, invest, create things.
• 45:02
  So follow us online, join our events, and share your stories.
• 45:08
  It's one of the easiest things you can do is reach out to me and share your story.
• 45:14
  Well, Andrew, thank you for taking time during tax season to share your story.
• 45:20
  It may be sax season, too.
• 45:22
  I mean, Chicago area is very good jazz in the city and blues.
• 45:26
  So thank you for taking time to share your story.
• 45:28
  This is very helpful.
• 45:29
  And I'm sure it's going to stress a lot of listeners out, but it's better to understand this stuff than not to.
• 45:35
  absolutely well thank you for having me and bringing attention to this this important topic
• 45:42
  but one that i get it not everyone wants to pay attention to yeah well hopefully we can do this
• 45:49
  again as uh as things progress and uh we get more information and hopefully better laws around uh
• 45:55
  bitcoin tax policy absolutely all right peace and love freaks thank you for listening to this
• 46:01
  episode of TFTC. If you've made it this far, I imagine you got some value out of the episode.
• 46:06
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• 46:11
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  consider subscribing via fountain as well thank you for your time and until next time
• 47:00
  Thank you.