Crypto Tax Confidence is Rare

By confidence, I don’t mean in trading or developing products. What I mean is it’s uncommon for people deep into crypto to trust that the IRS won’t be a problem in the future. That type of confidence is genuinely rare in the crypto sphere.

Let’s face it— no matter who you are in crypto, there’s a target on your back. I hear this type of talk all the time. Even as I explain what I do with the bots, people joke that I must write to them when I’m in jail. I know they are trying to be funny, but it’s not funny. The IRS is no joke.

When I made my first crypto-click, I held true to a few guiding principles that I believed would keep me safe until I could find the proper professionals for protection. Surprisingly, my main objective was NOT to make a huge amount of money. Instead, I focused on learning and made what I needed to stay in the game.

This piece outlines my experience with Clinton Donnelly and his company’s tax audit protection services (www.cryptotaxaudits.com).

My First Focus is Financial Freedom

Sorry about that title. I just really like alliteration.

I first discovered the cryptocurrency market and subsequent industry a while ago, and I started to learn more and more. The more I learned, the more questions I had, and I was lucky enough to meet some of the nicest people who have stuck with me over several years, and that history keeps going. These relationships showed me that a specific alignment of key technologies can possibly sustain my monetary needs for my entire lifetime.

Crypto is a broad term that leaves many people confused. The key is correctly planning each initiative and seeing through to the proper finish by finding a balance among all aspects of this emerging industry. Finally, that balance depends on your knowledge and willingness to partake at various levels, such as mining, node farming, yield chasing, NFTs, gaming, trading, investing, and many other ways to generate wealth. 

Way back when I started, my first question was, “Is this legal?” 

Knowing what we know today about this industry, can you imagine having the opportunity to buy Bitcoin at $10? It’s more than a little unfortunate that I had to second-guess that offer. Even staunch Bitcoin denialists would take that buy. Yet, when similar opportunities presented themselves, I hesitated and then stopped because I wasn’t certain if the country that I lived in would put me in jail for pursuing this unusual wealth.

That really sucks because do you know what I could have done with that money by now?

The truth is we don’t know what the future holds, and no matter what people tell you, it’s all set to change at a moment’s notice.  This is the reality we crypto “degens” face.  

Around the first outbreak of Covid, I only had modest means to invest in the crypto market, so I chose to risk less and participate more. I started buying things from ATOM to ZIL and everything in between in Exodus. Then I expanded into Atomic wallet and started staking, which started my journey throughout DEFI, transporting me to odd lands where money works in strange ways. I was documenting my journey in blockchain and blog forms, always believing that if I wanted to trade any of my crypto or buy new crypto, I should be allowed. This way of thinking is true if we make an agreeable, fair exchange of value and both parties honor the transaction.

I have to admit that since getting into crypto, I’ve been spoiled by instant settlement of funds.  I get frustrated swiping my credit card several times as the people behind me in line groan. I’m hopeful that crypto brings its transactional speed to the non-crypto payment culture, making lengthy money transfers with hefty costs obsolete.

Postponing Profits

Rather than chasing the bigger dollar-valued NFT-trading market or riding up and down these pump-and-dump schemes, I focused on building a sound business basis and collecting a global grasp of what may come in the next few years.  Coming from the entrepreneurial world and having a career in building solid technical solutions, I saw the cryptocurrency universe as a logical leap from my world as it merged finance and innovation. It was also abundant from the very start that these were my people, focused on doing good in the world and avoiding harm.

I started as a hacker, but not as you perceive a hacker now. A hacker isn’t even computer-based but rather a person who can see things in more ways than one.  It’s someone who can really look at something until they see that one angle that just might allow for an alternative use.

When I initially went into crypto, I dreamt up all the schemes. I witnessed people make and lose fortunes while I sat and learned. I threw a little crypto into some of these projects to watch how awfully they would fail, thinking that maybe there was an off chance for success or at least a chance to be involved in something larger than myself. I wasn’t intentional because I didn’t know the point. I also didn’t know if my random moves would bring gains or come back to bite me in the butt.

I tried just about everything you can do in the crypto world on a very small scale, and I learned what I liked and didn’t like.

Today I’m joined with several communities of like-minded people and financial explorers.  I chose to understand and learn before aiming for moonshots because great fortune brings life-changing events that require proper preparation.

During the bull market that drove BTC to 69k, staying modest in my earnings was difficult because it was super easy to trade and make gains when everything was going up. People always say everyone is a trading genius in a bull market when values are skyrocketing.  With a regular routine of trading and storing away profits, I could have earned massive gains like the ones my friends experienced, but I didn’t.

During this time, I made sure my gains were limited, and I never threw enough money into any one project that would raise a red flag for the IRS. Since I intended to develop effortless passive income strategies without drawing attention to my gains, I used that time to learn. 

Two years ago, when I was exploring, the IRS had no adequate legal advice for people dabbling in crypto. As a result, I lost out on a lot of opportunities. Crypto was so new that the IRS felt they could ignore it and it would go away. Other agencies passed on acknowledging crypto early on as well. This unfamiliarity and newness meant no one, including the IRS, had any clue how to handle it.

I know folks who made a fortune, and I’m happy for them! The difference between them and me is they can afford a cavalry of lawyers. If they get audited, they can hire the best of the best. Since that wasn’t an option, I had to protect my long game. I didn’t want to deal with the IRS in this early stage, so I forced myself to stay small.

I thought staying under the radar would work, and it did! As 2022 came, I had to start shifting my goals because not making money was no longer feasible. By this time, I needed to grow my future wealth and earn enough money to make a living in crypto.  

Today, my involvement in cryptocurrencies is increasingly difficult to track and report traditionally. I can’t just say, I bought this bitcoin for X dollars and sold the same bitcoin for Y dollars. These data points just don’t line up on most of my trades. Reporting is burdensome because there’s nothing traditional about crypto. I was beginning to think there wasn’t any guidance for people like me to safely divulge crypto earnings to the IRS. I thought I would be stuck trying to blend in and never make massive gains.

Then I met Clinton and the Donnelly team, and my crypto life changed forever!

Finally, no fear

I just finished filing my 2021 taxes (yes, in October 2022), and it took an army of specially trained people within the Donnelly team to dissect, understand, reconcile, and report my crypto gains. DEFI doesn’t give you a 1099, so there’s no way I could have done that myself. And there’s no way an accountant could make sense of the abundant transactions and their minute nature. 

Yes, it took eight months to complete my taxes, but the delay was not because of Clinton and his team. Instead, I wanted to wait to file when there was more crypto tax certainty so I would have less fear. Filing in April probably meant I’d be tied up in the tax court. Yup, that’s real and not something I wanted to experience pre-protection. Clinton advised me to wait, and so did my CPA.

Clinton did the necessary work to arm my accountant with all of my crypto-gain information, so they could complete my 2021 taxes. By getting the proper Donnelly team member on zoom calls with my accountant, I was removed from the “translation” role between the experts.

I have no fear of the IRS coming after me because I exercised much due diligence and reflection in filing. I also consulted with a forensic accounting service to document and calculate my proper earnings. I paraphrase Buffet in saying, I need to protect my investment. I had finally shed my fear and gained confidence. And let me tell you, confidence is a wonderful feeling!  The best thing is that it DID NOT cost me a fortune!

Taxes— the American way

Let’s be clear— this article is not about stiffing the IRS. You are jumping to conclusions if you’ve reached that understanding from my words. I don’t like paying the IRS my hard-earned money any more than you do, but it’s the American way. And more importantly, it’s the law. Unless you enjoy small, windowless enclosures, the easiest way to stay on the IRS’s good side is to be forthright with your earnings and pay what you owe, just like you would pay any other bill. You pay your cable and phone bills, so why not pay the tax bill with the same ease? I knew I had to do this; however, my crypto income made it imperative that I build a fortress to secure my fiscal privacy first.

Ideally, I should have had no reservations about spending my money and growing my wealth— but there were.  Without Clinton’s protection, I harbored lots of fear, leading me to spend less and make less, which sucks. I can’t help but think about the potential outcome in my first bull run-up if I had the security I have now. 

People involved in cryptocurrencies make money in a variety of ways: we mine it, we earn it, we trade with it, we stack it, we stake it. Money is in our veins; crypto people live money 24/7/365. So, like everyone else, we make a little more and designate that money to pay off the IRS. If you are intentional and prepare to pay your taxes all year long, paying your fair share is not burdensome. For example, keep a little TAX account where you dump 30% of your profits. That nest egg can cover a lot more than just taxes at year’s end if you are Clinton’s client. 

My financial firewall

In the technology world, a firewall protects a network from outside intruders, and I knew I needed a financial firewall to protect my crypto decisions from the IRS. The fact that I pushed a button to buy something two years ago shouldn’t suddenly become a legal issue. Likewise, onerous tax laws that weren’t transparent before I pushed the button should not be applied retrospectively.

I recently built my crypto firewall and want to share the experience with you. Erecting this wall brings peace of mind knowing I found the proper way to protect myself in both the short-term and the long haul. I am now divorced from my fear and able to re-approach the crypto markets in ways that should help me succeed greatly in the next bull run— whenever that will be.

You can gain the same confidence, and it’s not expensive.

In many of my articles, I usually start off saying not to do what I do, but in this case, DO WHAT I DO— seriously! Sign up for the Audit Defense, and you won’t be left to deal with legal strife if the IRS comes for you. A reasonable fee of $249 a month guarantees that you have the only real tax lawyer I know who specializes in crypto tax reporting. He, along with a team of 20+ forensic accountants, will be on your side should the IRS audit you.

Audit Defense will protect your current, future, AND prior transactions from IRS scrutiny even if you owe, haven’t filed 2021 taxes, or filed 2021 taxes and didn’t include crypto gains. Heck, they’ve taken on clients that hadn’t filed in 3+ years because of crypto activity and fear of the IRS. The Donnelly Team does it all!

I’ve known Clinton Donnelly for a while now, and the few calls I’ve had with him were insightful and incredibly reassuring. I felt Clinton was on my side, even though there shouldn’t be sides. On the first call, I listed my crypto actions and asked if anything posed a problem regarding my future. Not only did he answer, “No,” he also thoroughly explained why each move was okay.

To my knowledge, there is more confusion than actual law regarding crypto. Even now, after a 10-year journey, there are still no real crypto tax laws on the books because the IRS and congress initially ignored crypto, which established a lengthy stagnation of priorities. The folks in the IRS have been slow to react. Their slothfulness has put millions of US-based crypto investors in legal jeopardy and left them with fewer assets because the first bull market was steeped in legal fear.

Whether it was apathy, laziness, or simply the fact that they thought they could ignore the crypto craze and it would fizzle, their failure to move on crypto will not last forever. Thankfully, now we are on the other side of some worldwide regulation moves and experiencing what I believe to be positive but slow progress with crypto legislation. But that won’t stop the IRS from coming after you.

The Crypto Audit Defense Plan

Clinton Donnelley’s Audit Defense is truly Crypto-specific tax insurance. If something goes wrong, CryptoTaxAudit has your back!

The amount of good that comes with this single subscription is hard to describe, and with a 90-day money-back guarantee, there was nothing for me to lose. 

Upon joining, the paperwork is nicely laid out in a DocuSign, and it took me about 10 minutes to complete. After that, you can schedule an Audit Risk Assessment, and they review your past returns and suggest how to better position yourself in the future. Some suggestions may result in new refunds, while others may align your tax returns to newer policies and precedents. They will also recommend correcting past blatant errors. 

They’ll also represent you for free if the IRS audits you. 

Seriously, that alone is worth the subscription fee. If you hire this service from any other company, you’ll pay tens of thousands of dollars for each tax court action— and there will be many.  

Let the Audit Defense team support your crypto endeavors as they support mine. The crack team of forensic accountants will be on your side and come to your assistance when you need them.

My journey with Audit Defense

Before jumping into anything, I do my research. I followed Clinton Donnelley and his team for a few years and liked what I saw. After watching from afar, I felt assured that the folks at Audit Defense are motivated to protect privacy and financial freedom every time I interact with them. I discovered they are a growing company that takes the time to build real relationships with their clients, and they are dedicated to long-term service, which is a comfort for people like my friends and me who are into crypto for the long haul. 

In mid-2021, I signed up for a plan to test their services, and it wasn’t long before things got rolling.  After onboarding into a monthly reporting plan, I realized I could trust Clinton and his team. This was an important step because trust is difficult to muster these days. But I still wanted to complete the first few steps of the process, including the 2021 tax return, before I reported my official stamp of approval to the public. 

At this point, I don’t worry that they won’t deliver because I’ve grown with them this past year. Each and every person I spoke with took the time to answer all my questions, and their work was impeccable, thorough, and immensely important to my future defense should the IRS come knocking. They explained every step and archived all the paperwork into their secure portal, should I ever need it.

Oh yeah, and here’s something funny—hidden tax refunds. I didn’t even know this was a thing, but during an Audit Risk Assessment, the review process sometimes uncovers hidden tax refunds back to the year 2000.

The monthly IRS account monitoring begins once your account is created. This ensures you’ll be notified BEFORE the IRS connects with you. I’m told once an internal IRS computer targets your tax return for an audit, you can re-state your taxes and correct the issue before a human even looks at your audit; having this extra time could thwart the audit altogether.

I look forward to my monthly consolidated IRS transcript reports with annual wage and income information pulled from the IRS database. Information is power these days, and Clinton’s team gives you access to all the information you need to survive in this legal quagmire called crypto taxes.

I’m not an alarmist, but they are coming

The 2020 IRS tax inquiry starts with the question: “Do you own digital currencies?” The urgency with which they will push these crypto audits is more than a little scary. I believe this was a tactic to trap folks into saying, “No.” If you fall for the trap, they will probably come knocking sometime soon— if they haven’t already.

In my case, I’ve always been forthright, and my honesty has paid off— no knocks on my door (yet). Going forward, I won’t have to worry, though, since I have Clinton and his Audit Defense team on my side!

As an Audit Defense client, you can talk with experts on the crypto tax front. These professionals will review your past and present financial situation and most likely make some recommendations to re-do prior tax returns, making them more compliant with existing tax laws.  So, if they find an error in your 2020 tax return (like saying “no” to that question), Audit Defense can help you legally re-state your taxes before anyone at the IRS is the wiser.

You might be thinking, “I already have an accountant.” No worries— Clinton prefers that you retain your current financial advisors suited to tackle other specific financial issues. Clinton’s team works with you to collect your wallet addresses, various system APIs, and transaction dumps from your crypto wallets. They walk you through finding all the information they need so you can be hands-off in the rest of the process. Then they work with your tax preparer to properly complete the information needed to ensure your crypto gains are safely reported.

As long as you are a client, Audit Defense will go through your crypto dealings and make yearly recommendations to your accountant. You could say Clinton’s Audit Defense team provides a crypto tax insurance policy. Their sole focus is to understand and relate the crypto regulations to their clients, and this service is a relief to both my accountant and me. 

The IRS goal

The goal of the IRS is admirable; they need to collect money so the USA can keep operating.  Though, to me, it’s incredibly humorous that the government needs to collect taxes from citizens since banks and the FED can will the US Dollar into existence at a moment’s notice.

At this point, it seems as if the IRS is back where I was on day one of my crypto journey. They are trudging through the dense crypto forest, trying to make sense of it. Erroneously, they are trying to tackle the crypto currency’s massive tax ramifications by forcing new financial interactions into antiquated laws created before crypto, and most of these laws were even in place before the internet.

This action creates situations where the IRS can’t properly define crypto tax protocol and has difficulty assessing tax on certain transactions. Hitting this stone wall is probably incredibly annoying to the legacy IRS folks because they are used to tight-fitting laws that one might call a hand-in-glove law. Certainly, the legal climate will change, but it will take time, and I’m hopeful the changes are for the better. Either way, I’m thankful that all this stress is off my shoulders thanks to my financial firewall: The Audit Defense protection plan.

The attack surface

If you think about it, crypto people have many attack surfaces. Just being in crypto creates numerous risks that don’t exist elsewhere. Folks deep into crypto like me endure platform, technology, asset, and liquidity risks— and that’s not including taxes and all their precarious potholes.

Over the years, my experience has taught me lessons that address all the risks. One such technology protection is Efani for phone service. Others include wifi-only devices without sim cards, and the cell service turned off.  Just as spreading my assets among many wallets and technologies help address these technology risks, I also need protection from the IRS.

Sure, the risks are still there, but until recently, I had only one attack surface that I felt wasn’t properly protected— taxes and the IRS. Because, let’s face it, an IRS audit would suck even if I won. It’s not that they have it out for us; it’s just how it works. I’m told in an audit the IRS shows up completely prepared because they’ve had months to research and verify your data. Unfortunately, you only have 30 days to collect, understand and organize your information, plus find a tax attorney to represent you.

Clinton’s team levels the playing field by ensuring everyone starts on the case simultaneously. When the automated decision is made to audit a tax return, the IRS system starts its process, and so do Clinton and his team. Early alerting watches all internal audit tags, so the IRS does not receive an unfair time advantage. More often than not, the Audit Defense team can resolve the issue before you even get the audit notice, saving you from the shock of opening it.

My Greatest Fear

The IRS is compulsory. There’s no argument that it needs to better manage how large corporations pay their taxes, and like most Americans, I’m tired of greed.

My greatest fear is that the IRS looks at a person’s crypto gains through legacy banking binoculars. What is true for traditional banking isn’t always true for Crypto and vice versa. For example, I run bots all the time— non-stop. In a legacy banking context, I’m a market maker.

That’s right! My $50 in a bot is participating in market making. In the legacy banking context, a market maker is traditionally a large firm like JP Morgan, BlackRock, and Fidelity, providing their stock assets to stock exchanges like the NASDAQ in a controlled way. I do the same thing with exchanges because they need this liquidity, and in crypto, anyone can provide it—  I just do it on a much smaller scale to line the market with buy and sell orders.  The legal and financial differences between Fidelity and crypto folks like me are vast, so it will be interesting to see what happens to people who play parallel roles in crypto markets but with alternative parameters.

When it comes to botting and taxes, I have a unique situation. The transaction volume over time is enormous, and I’m pretty sure my tax returns are anything but normal. Traditionally, the IRS internal computer would put an “audit tag” on random tax returns for any number of pre-programmed reasons. Until now, I was all about blending in with the crowd, but after two crypto tax years, I’ve learned that all crypto folks are unique, making it extremely difficult to stay “under the radar.” But I’ve let this fear go and handed the burden of taxes and strategy over to Audit Defense.

Signing up 

Once I signed up, I needed to sign some official papers, which Audit Defense made easy. Ultimately, I was hiring someone to represent ME in tax court. So yeah, there’s a bit of paperwork. They guided me through it, and afterward, I legally granted them the right to review my internal IRS record on a monthly basis.

Their onboarding process is key to your comfort because it certainly helped me. I was a mess the first time I spoke with Clinton. I felt as if I had made so many wrong decisions in my crypto finances that I couldn’t even muster the courage to turn the video on. But ever since the day I decided to hire Clinton’s team, I rest assured that the IRS doesn’t have me on their list. And if they ever did, I’d have a team of knowledgeable professionals by my side the entire way without worrying about being bankrupt from legal fees.

Complete protection

Each month Audit Defense goes through all the IRS records and notifies anyone if audit tags have been triggered. Then they spring into action.

An audit tag could be based on any pre-programmed criteria, like a high NET income. In my case, they will probably flag my return because the sum of all these transactions together looks like I was given quite a bit of money from the exchanges. What their program wouldn’t see is the other side of the trade. 

That’s how the IRS usually catches people cheating. Say I received 6 million dollars over a year— I don’t, but say I do. To the IRS, that looks like a family making 6 million dollars. But they don’t see until they dig in that I spent $5,999,000 to pull small gains with each transaction, recouping my expenses and only netting a modest amount.

Also, most things I do have no dollar value as some currencies don’t trade with the US dollar yet. Therefore, the IRS may see a large amount of unreported transaction volume, and their AI lights go off, launching my tax return into the hands of an eager IRS crypto specialist aiming to make me pay.

The problem is that I didn’t make money on these transactions, so there’s no gain to tax. But they don’t know that since their internal systems are built for a very different financial platform, FIAT.  The IRS needs to go through a platform re-tooling or add augmented cryptographic financial systems and newly trained teams of crypto experts who also understand tax law. They also need to rethink what now qualifies as a financial instrument and how and where crypto transactions occur. And even in some places, they should consult the industry already in progress.

All of these system glitches are no longer in the forefront of my brain. I now have Clinton and his Audit Defense members on my team. They understand, specialize, and look out for these specific crypto tax nuances. Each time I speak with them, I learn something new. I recently spoke with Clinton and my CPA, who has been doing corporate returns since 2010 and owns his own firm. Once we hung up, my CPA said, “That guy really knows what he’s talking about.” And I agree!

I was so concerned about going into the call that I wrote down all my questions again. Amazingly, coming out of the call, I was elated that nothing I was worried about for my current year’s taxes was a problem. Clinton assured me that if these things came back to haunt me—which I’m convinced they will—his team will support me free of charge since I’m an active Audit Defense client who went through the proper onboarding.

I’ll probably be tagged at some point, but I feel confident that Clinton has it under control. Audit Defense provides the confidence I need to focus on one year at a time. I just finished 2021; it’s time to start thinking about 2022. 

The raw truth

My connection with Clinton Donnelley and the Audit Defense team was life-changing!  I feel relaxed and eager to re-approach the market with a new agenda— making gains.

There are many tax softwares available, and it’s important to note that there are many conflicting truths in crypto taxes. It’s logical because each of these computer systems seems to process that data in entirely different ways. How can an IRS-sanctioned software calculate different taxes than another IRS-sanctioned software? I’m not talking about a small amount. The swing is 30% plus or minus how much you owe and how many taxable transactions you have in any given year. 

And that’s not all. The IRS contracts with a few of these software vendors. Now your tax information is already in a system that the IRS has access to, and you don’t even know. It’s a mess, but the Audit Defense process uses this lack of clarity against the IRS, so the fact that it’s disorganized is a positive for folks like me. While masking my identity, Clinton and his staff loaded some of my wallets into certain software combinations. It was clear that there was no consensus, even on things as simple as how many times I sold a currency for another.

If the IRS isn’t organized and there aren’t laws on the books detailing how to handle cryptocurrency, it all comes down to the IRS versus you in tax court. You stand there and say you did the best you could, and the IRS rips you a new one. Right?  WRONG!

If you are protected by Audit Defense, Clinton defends the raw truth. He stands there for you and exposes the discrepancies and the lack of a uniform system. He shows 8 or 9 other ways to calculate your taxes using other companies’ methods. The lack of clarity and amount of dysfunction is damaging testimony for the IRS and wonderful for you.

To illustrate this point, my report from Audit Defense is nearly 500 pages of contradicting information from other tax companies. This document disclosed that I paid $1,231.66 in exchange fees over the year, which is not bad.

In summary

In the cryptocurrency sphere, there’s new protection. There’s an impenetrable firewall and the reassurance that someone’s got your back. Clinton and the Audit Defense team stand in court for you and show the judge that there are many conflicting IRS-sanctioned truths and ask which you should believe before filing your taxes. With so many options, all you can say is you took an educated guess and hoped for the best. Then the IRS must prove that they calculated your taxes correctly even though they used a tax law that was built for paper currency. The results consist of numerous conflicting reports that damage their case and improve yours.

The IRS doesn’t want to be nasty; they just want the people who make money to pay their proper share of taxes. While we can argue forever about corporations not paying their fair share, it’s a red herring regarding your fiscal future. Don’t get caught up in politics. Instead, think about how you want to spend the next few years. Do you want to be a nervous wreck every day and worried that you’ll receive a nastygram from the IRS? Or do you want comfort in knowing that if you receive a letter, you only need to scan it and send it to Clinton’s team?

I’ll take the latter every day.