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When the IRS Wants Its Money Now, It’s Happy to Take Your Cryptocurrency

Posted by Brandon Keim | Dec 02, 2021 | 0 Comments

Whether you have cryptocurrency holdings or can't tell the difference between Bitcoin and Dogecoin, Strashny and Strashny v. Commissioner is a cryptocurrency-related federal court decision that should have everyone with an outstanding Internal Revenue Service (IRS) bill taking notice.

In Strashny, a married couple had a tax bill of $1.1 million, so they petitioned the IRS for a six-year payment plan to pay off the amount. In related filings, the Strashnys reported that they had $200,000 in annual income and $7 million in cryptocurrency holdings. Each month, they withdrew $19,000 from those holdings. Therefore, the IRS Settlement Officer (SO) denied the Strashnys' request, concluding that the Strashnys had the means to pay the entire bill in full and must do so. The tax court subsequently upheld IRS' decision.

REQUESTS FOR INSTALLMENT PLANS ARE NOT AUTOMATICALLY GRANTED

The first lessons of Strashny are that the IRS does not automatically grant an installment payment plan to every taxpayer who requests one. When reviewing an installment plan request, IRS will review factors such as:

  • If you dispute the tax amount owed
  • Your earned annual income
  • The value of all property you own, regardless of the form of asset
  • Your assets' liquidity
  • Your use of your assets and income
  • Circumstances relating to potential hardship (e.g., old age, illness)

In the Strashnys' case, the SO concluded that the Strashnys had the resources to pay the entire debt and must do so: The fact that most of their assets were in cryptocurrency did not change the equation. That was particularly since the couple regularly drew income from cryptocurrency, suggesting it was liquid enough that they could easily convert it to US currency.

Further, according to Strashny, a court will generally uphold the IRS' decision to deny a request unless there is evidence that the IRS abused its discretion in issuing the denial. Simply saying “No” to a request does not meet that abuse-of-discretion standard.

HIRE AN EXPERIENCED TAX ATTORNEY

Strashny is a reminder that you need experienced tax counsel who understands how new forms of assets, such as crypto, can impact your tax liability and help you strategize the best courses of action from there. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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