The Internal Revenue Service (IRS) has won a case in which it demanded that a Maryland couple liquidate their bitcoin to pay-off a $1.1 million tax debt.
Alexander and Laura Strashny proposed to the IRS to pay their 2017 tax liability, generated from non-crypto activities, in installments over a six-year period.
But after seeing the Strashnys $7 million cryptocurrency fortune, the tax collector rejected the proposal, insisting that the couple sell a part of their bitcoin and immediately settle the debt in full.
The case was heard in a tax court in the state of Maryland on June 11. More taxes await the couple in the likely event it sells crypto to pay-off the debt. Bitcoin investors in the U.S. are taxed on profits generated from buying and selling of digital financial assets.
The ruling shows how your cryptocurrency holdings could work against you in applying for an installment plan with the IRS and how contrary to popular belief regulators have oversight over your cryptocurrency portfolio, said Shehan Chandrasekera, tax expert at Cointracker.
According to court papers, the Strashnys filed a 2017 tax return on time, but did not pay the $1.1 million tax charge, inclusive of penalties. In July 2018, the couple proposed to the IRS to pay-off their huge tax bill over six years.
To qualify for the installment plan, a taxpayer must also furnish the IRS with details about their source of income, personal assets, including cryptocurrency, as well as monthly expenses. So, the Strashnys filed a Collection Information Statement, also known as Form 433-A, for this purpose.
It is on this Form that the couple revealed its $7 million crypto cache. In addition to annual wages of $200,000, the Strashnys were also pocketing $19,000 each month from their digital assets investment. Now the IRS hit the family with a formal threat of seizure of wages and properties, as it waited for a response on the installment proposal The tax collector demanded full payment on time.
Eventually, the Strashnys requested a hearing. The tax court ruled that the couple was in a good financial position to pay off the $1.1 million tax debt by liquidating the crypto stash or borrowing U.S. dollars against the virtual currency.
The outcome of this court case shows how cryptocurrency is not immune from regulatory oversight, explained Chandrasekera.
One might question why the cryptocurrency holdings were reported on Form 433-A in the first place. This IRS form is signed by the taxpayer under penalty and perjury. If the large holding of cryptocurrency were omitted from the form, this would have been a fraudulent filing and the consequences could have been much harsher, he added.
What do you think about the IRS crypto liquidation tax demand? Let us know in the comments section below.
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IRS Tells Couple With $7 Million in Bitcoin to Liquidate Crypto Assets and Pay off Tax Debt | Taxes - Bitcoin News