Is Your Bank, Broker or Exchange Sharing Your Transactions with the IRS?Offshore Account Update
Posted on August 31, 2021 | Share
The Internal Revenue Service (IRS) relies on information from various sources to examine taxpayer compliance. This includes information obtained from banks, brokers, and cryptocurrency exchanges. If your bank, broker or exchange has shared information about your transaction history with the IRS—and if this information is inconsistent with the information you reported on your federal tax returns—this could lead to a tax audit or investigation. Learn more from New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.
How the IRS Obtains Information from Banks, Brokers and Exchanges
The IRS obtains information about taxpayers from banks, brokers and exchanges in a few different ways. However, all of these methods of information gathering share the same fundamental purpose: to allow the IRS to confirm (or disaffirm) the accuracy of taxpayers’ returns.
Under federal law, banks and brokers are required to report transactions that exceed certain thresholds and that meet certain other criteria. Under the pending 2021 infrastructure bill, a similar requirement could soon apply to cryptocurrency exchanges. Foreign financial institutions must report U.S. taxpayers’ offshore accounts and other assets in certain circumstances as well.
The IRS also obtains information about U.S. taxpayers from these entities through formal legal means. For example, the IRS has recently used so-called “John Doe” summonses to compel cryptocurrency exchanges to disclose information about their customers. It has used these summonses (and other investigative tools) in various other circumstances as well.
How the IRS Uses Information from Banks, Brokers and Exchanges
These means of securing information provide the IRS with an inordinate amount of data, and the flow of incoming data is never-ending. However, the IRS has tools at its disposal to sift through the data and gain meaningful insights into taxpayer compliance, and it can also examine reported data on a case-by-case basis when auditing or investigating individual taxpayers. If the 2021 infrastructure bill passes, the IRS will get additional resources to manage the new influx of transaction data for cryptocurrency investors, and it will have a mandate to make use of the data in order to increase the federal government’s cryptocurrency-related tax revenue.
As a U.S. taxpayer, what does all of this mean to you? In short, it means that you need to be very careful when reporting your financial, securities, and cryptocurrency transactions to the IRS. It also means that if you have submitted a federal income tax return with false information in the past, you will want to proactively address the issue before the IRS discovers it on its own.
Schedule an Appointment with New Jersey Tax Lawyer Kevin E. Thorn
New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, represents U.S. taxpayers in tax audits, investigations and other IRS matters. If you are concerned that a review of your bank’s, broker’s or exchange’s reported transactions could lead to trouble with the IRS (of if you are currently facing an audit or investigation), you can call 201-355-8202, email firstname.lastname@example.org or inquire online to schedule a confidential consultation.