I don't have any crypto-currency, or even a wallet, but it's my understanding that the thing some people value it for is the privacy/untraceability of it... so, uh... am I wrong about that? And if I'm not wrong, how would a governnent investigate a failure to report? I don't see how this can work. Granted, I don't know a whole lot about how crypto wallets work.
Good question.
I would guess FinCEN/IRS are looking for a penalty bonanza from audits on High Net Worth individuals. Much of the $10Bn attributed to FATCA came from the penalties imposed for not reporting on 1040, Sch. B, 8938 and FBAR. As we know, for FBAR, it's $10,000 per year per account, although I believe several US courts have limited, in specific cases, the total to $10,000/year. As Jimbo said, there could be ways of discovering the amounts: for example someone cashing out and depositing into a bank account.
This year (2020 return) there is a question on 1040: "
At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?". If it just sat there for the entire year, "no" will be OK, but at some point, a "yes" would have to be declared, and I imagine that stays with the taxpayer's record forever. That's the problem with the informational forms - for example: once the taxpayer declares something, and at some point they die, the IRS knows where to look for death duties.
That's the why the information forms are detested: dishonesty can yield big penalties and honesty yields a permanent record of funds for possible future taxation. And yes, I'm feeling grumpy this morning.
Being a poor, "old, non-tech" person with no mining computing power, I also know nothing about Bitcoin.
