Bitcoin miner audited by the IRS due to previous cache of bitcoins found by IRS?

[blink.blonk.01]

http://redd.it/2byri6

Was just contacted by the IRS. They say that they want to audit my mining business. tldr: I mined a bunch of coins back when CPU mining was profitable (more on this later). More recently I started mining with some Avalon ASICs (which I declared under my business and tried to get reimbursed for taxes paid for electricity, losses due to bitcoin fluctuations, and depreciation of my assets). The IRS now (apparntly??) has looked at my mining business and found "evidence" of my earlier CPU mined bitcoins, and that they are mine (I suspect by linking my purchases from BitPay to my mailing address?) and they want to know why I haven't paid any taxes on these bitcoins. I have to meet them in person on Wednesday. What should I do? I have thrown up twice in the last hour I am so nervous.

Shocking if true...

[Meuh6879]

you say nothing.
take the business model from your accounter when you have declare no profit.

speaking method is a trap, with all administration.

[juju]

http://redd.it/2byri6

Was just contacted by the IRS. They say that they want to audit my mining business. tldr: I mined a bunch of coins back when CPU mining was profitable (more on this later). More recently I started mining with some Avalon ASICs (which I declared under my business and tried to get reimbursed for taxes paid for electricity, losses due to bitcoin fluctuations, and depreciation of my assets). The IRS now (apparntly??) has looked at my mining business and found "evidence" of my earlier CPU mined bitcoins, and that they are mine (I suspect by linking my purchases from BitPay to my mailing address?) and they want to know why I haven't paid any taxes on these bitcoins. I have to meet them in person on Wednesday. What should I do? I have thrown up twice in the last hour I am so nervous.

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Shocking if true...

I would probably post this to the Legal forum, their are some people in their who might be able to give some advice. I will try to get this thread moved to that board, more people should be able to help you their.

Edit: Just realized this is probably not you asking for advice, but cross posting something seen on reddit.

[blink.blonk.01]

Sorry, this isn't me! I'm just reposting an interesting thing that I found on reddit. Thought it would be appropriate here, but feel free to move it to wherever you think is most appropriate.

[escrow.dude]

I am not sure how they could really audit you like this. It would be very hard for them to prove that you had mined with your CPU and/or what you actually sold the coins for.

[Soros Shorts]

My guess is that the reddit poster provided Bitpay receipts to document the purchase of his hardware which he had paid for in BTC. Of course the IRS would want to know where those bitcoins originally came from. Since he is in the mining business it is reasonable for the IRS to ask him to show that those earliser coins weren't obtained through mining and therefore not subject to taxes.

[jjc326]

Honestly I wish the poster luck but he shouldn't have provided all this info without first talking to a lawyer.  In other words he kinda dug himself into a hole here by showing that he had prior Bitcoins.  If you're going to claim your Bitcoin mining is a business you better be ready to go all the way because your chances of being audited is going to be increased.  What I mean is that you can't  call yourself a business one year when you didn't declare any bitcoins in a previous year and there's evidence to show you had prior bitcoins.

[blumangroup]

Honestly I wish the poster luck but he shouldn't have provided all this info without first talking to a lawyer.  In other words he kinda dug himself into a hole here by showing that he had prior Bitcoins.  If you're going to claim your Bitcoin mining is a business you better be ready to go all the way because your chances of being audited is going to be increased.  What I mean is that you can't  call yourself a business one year when you didn't declare any bitcoins in a previous year and there's evidence to show you had prior bitcoins.

He could have easily used a VPN and/or TOR to connect to these forums prior to posting, making it so the IRS would have trouble linking the OP to the identity of the OP in court, or even finding out that he was the OP.

[keithers]

I think it is probably because of the claimed losses.   I am not a tax professional, but claiming losses on BTC (while it is so new and not yet understood), probably raises red flags for an audit.

[jjc326]

I think it is probably because of the claimed losses.   I am not a tax professional, but claiming losses on BTC (while it is so new and not yet understood), probably raises red flags for an audit.

Yeah that's what I was thinking.  I know claiming that you run a small business, especially out of your home, really sets you up to be audited.  Probably same thing with claiming losses from mining.  I mean, anyone could "claim" that, and it's a new thing (Bitcoin) so I'm sure they're going to audit anything like that.  It's like I could work a full time job and then claim losses from mining or whatever so I didn't have to pay taxes on money I earned from my job.  The IRS is not going to like that.