While its well-known that the revised Schedule 1 form for U.S. taxpayers now contains a question about cryptocurrencies, what is lesser discussed are the legal ramifications this may have for filers who answer incorrectly. The vague nature of the yes or no inquiry has one tax expert doubting the constitutionality of the question, urging all filers to answer ‘yes’ to avoid bitcoiners being unfairly targeted. Further, as anything from frequent flyer miles to credit card points could technically fall under the IRS definition, answering yes could save some from a felony charge, according to the source.
Also read: IRS Now Requires Tax Filers to Disclose Crypto Activities
The Dreaded Crypto Question
“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” the 2019 Schedule 1 question reads.
The problem here according to Enrolled Agent Clinton Donnelly of Donnelly Tax Law, is that the inquiry is not only illegal, it’s also far too vague. The question “violates many of the taxpayer’s constitutional rights and is a disturbing overstep of what Congress has authorized the IRS to do,” Donnelly told news.Bitcoin.com. “There is no law supporting this question in tax law.” He elaborated:
This question has a chilling effect on First Amendment Rights. It violates taxpayers’ legal protections, violates the excessive fines clause of the Eighth Amendment, along with the due process and equal protection clauses of the Fifth Amendment.
Donnelly says that taxpayers should not have to report buying crypto unless in an audit. They only need to report selling it. “The tax law requires reporting income, including capital gains from the sale or exchange of cryptocurrencies. But to ‘receive’ or ‘acquire any financial interest in any virtual currency’ is
