If you are a cryptocurrency trader and you owe a tax debt to the IRS, chances are that you will have to use your cryptocurrencies to clear your debt according to a decision by the U.S Tax Court.
The U.S tax court decided in a case where a couple was involved in a tax dispute with the IRS. In 2017, Alexander and Laura Strashny failed to pay the amount they owed to the IRS as per their tax return. Their tax liabilities and fines to the IRS grew to $1.1 million, thereafter they requested to make the payments in 6 yearly installments.
The couple also revealed that they had a cryptocurrency account worth $7 million from which they withdrew $19,000 every month and that their annual income was more than $200,000. Based on this information, the IRS concluded that they could pay the amount in full, and the request for payments through installments was denied.
The Strashnys decided to push the matter to the U.S. Tax Court which unfortunately for them, sided with the IRS. The court’s ruling was that the couple could withdraw the money to pay off the IRS debt from their cryptocurrency account.
What does the court ruling mean for cryptocurrency traders?
The court ruling in the Strashnys case will apply to crypto traders moving forward. This might put cryptocurrency traders at a disadvantage because it means that they might be caught off-guard. For example, if you invest in a cryptocurrency and the value of the cryptocurrency goes down, that means you are losing money in the investment. However, cryptocurrencies are quite volatile, and you might decide to wait a while longer so that the value of the investment goes up.
In case you get into trouble with the IRS before the investment value increases, you might lose your money. In this case, the remedy is to make sure that you are right as rain with the taxman to avoid being caught up in a situation through which your crypto investment is at a higher risk than necessary.