IC1 – IRS Determination Letter Video Series
Executive Summary of IC1 – IRS Determination Letter Video Series:
The “IC1 – IRS Determination Letter Video Series – Privacy Fight” is a three-part video series focusing on tax issues related to cryptographic or virtual currencies and the process of obtaining an IRS determination letter to address concerns with backup withholding.
In Video 1, an expert shares insights on the taxation of virtual currencies, criticizing the approach of certified public accountants (CPAs) and highlighting the importance of understanding and utilizing the tax system. The video emphasizes that virtual currency is treated similarly to gold by the IRS, questions the discrepancy in tax treatment, and clarifies that the object being taxed is dollars, not the virtual currency itself. It also discusses the relationship between users and cryptocurrency exchanges, emphasizing that account holders do not have ownership of the virtual currency in their accounts. The video concludes with advice on calculating reportable gross income and dispelling fears of audits.
Video 2 delves into the process of making a Request for Determination Letter to the IRS, specifically related to backup withholding on potential income from cryptocurrency trading. The video provides guidance on writing the letter, following the IRS guidelines and utilizing a sample letter, and emphasizes the transaction-specific nature of the determination letter. The creator shares their personal experience and advises sending the letter with a copy of the 1099 K form. The video concludes with a cautionary note to use the sample letter for its intended purpose and not for other disputes with the IRS.
In Video 3, a review and Q&A session is hosted to discuss the IRS determination letter. The video emphasizes the importance of meticulous responses in the letter, as it has legal implications and requires the recipient’s signature. It explains how the letter relates to cryptocurrency tax issues and highlights that it applies only to the individual making the request for a specific tax period. The video provides insights into the letter-writing process, addressing procedural matters and avoiding potential IRS filing fees. The Q&A session allows participants to ask questions and hints at future sessions.
Overall, the video series provides valuable information on navigating tax issues related to virtual currencies and offers guidance on obtaining an IRS determination letter to address concerns with backup withholding. It encourages individuals to understand the tax system, take advantage of available resources, and seek clarification from the IRS when necessary.
Video 1 Summary
1. The video features an expert sharing his experience with a tax process he has used for clients in the last three years, focusing on the taxation of cryptographic or virtual currencies.
2. He criticizes certified public accountants (CPAs) for not effectively utilizing tax systems, despite having been shown how to do so, stating that individuals should not be afraid of the tax system, but understand and use it to their advantage.
3. The video points out that the tax system is not illegal and criticizes the approach of some CPAs towards the taxation of cryptographic currencies, noting that most concerns arise when individuals receive a 1099 form from exchanges dealing with these currencies.
4. The speaker suggests that issues arising from the 1099 form cannot be rectified by the issuer but must be corrected through the Internal Revenue Service (IRS) using their own form letters.
5. Cryptographic or virtual currency, according to the video, is treated in the same manner as gold by the IRS, prompting the question as to why the tax treatment differs and why individuals pay tax on the change in value for virtual currencies but not for gold.
6. He stresses that the object being taxed is dollars, not virtual currency or gold, and asserts that there is no law that imposes a tax on virtual currency in the United States, unlike in El Salvador where Bitcoin has been declared legal tender.
7. The video then discusses the relationship with third-party cryptocurrency exchanges, like Coinbase, that hold the private keys to the virtual currency in a user’s account, emphasizing that this structure is similar to a lease agreement where the lessee has beneficial ownership rights, but the lessor holds the title.
8. He clarifies that the account holder is not the owner of the virtual currency in their account, and can engage in transactions according to IRS standards, however, gains or losses are realized only when the private keys change hands.
9. The video advises against fearing an audit and explains the worst-case scenario as receiving a Notice of Examination Changes (form 4549) from the IRS.
10. Finally, the video discusses a method to calculate reportable gross income after taking a small portion from a significantly appreciated investment, highlighting that the 1099 form from the exchange or third-party custodian does not represent the actual tax liability.
Video 2 Summary
1. The video discusses how to make a Request for Determination Letter to the IRS, a topic not previously disclosed by the creator.
2. The creator discusses their personal experience of communication with the IRS, specifically concerning backup withholding.
3. The IRS has a formal process and specific guidelines for the Request for Determination Letter, which requires detailed factual information regarding the request.
4. The creator explains the process of writing this letter, including instructions and a checklist provided by the IRS.
5. The specific transaction being discussed in this case is related to a 1099 tax form, concerning backup withholding on potential income from cryptocurrency trading.
6. The creator advises following the guidelines for a letter ruling request when crafting a Request for Determination Letter, as the official booklet does not provide a format for this particular request.
7. It is highlighted that the IRS determination letter is transaction-specific and applies only to the person making the request.
8. The creator shares a six-page Request for Determination Letter, emphasizing that it should be sent with a copy of the 1099 K form, not the tax return.
9. The creator makes a point that the IRS has misclassified virtual currency transactions, leading to improper backup withholding, and this is what the determination request seeks to correct.
10. The video ends with a caution for viewers to use the sample letter specifically for its intended purpose, to dispute backup withholding on cryptocurrency transactions, not for other disputes with the IRS.
Video 3 Summary
1. This video is part three of a series discussing an IRS determination letter, in which John is hosting a review and Q&A session for interested individuals.
2. John expects participants to have watched parts 1 and 2 and focuses on a specific IRS letter that has remained almost unchanged since the 1990s.
3. He explains that the IRS uses these letters for statistical purposes and emphasizes the importance of meticulous responses, as it has legal implications and requires the recipient’s signature.
4. John illustrates how the letter relates to tax issues associated with cryptocurrency, stating that the IRS administers tax on it through backup withholding.
5. He clarifies that an IRS ruling or determination letter applies only to a specific individual for a specific tax period and cannot be generalized to others, even in similar circumstances.
6. John shows the process of writing the letter according to IRS procedure, with the goal of preventing backup withholding, arguing that the 1099-K tax form does not create a backup withholding situation.
7. He emphasizes that the tax return must be filed in conjunction with submitting the determination letter.
8. The video also covers how to avoid a potential IRS filing fee of $275 by detailing procedural matters within the letter.
9. John mentions that the determination letter is used only when an individual receives a 1099-K tax form that incorrectly reports the amount received.
10. The video ends with a Q&A section, where John invites questions from the participants and mentions the plan to organize future Q&A sessions.