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Cryptocurrency Donations Pour Into Ukraine. This Week in Bitcoin and Crypto News
Cryptocurrency Donations Pour Into Ukraine. This Week in Bitcoin and Crypto News
Welcome to Nonfungible Tidbits. Our focus this week: Russia's war in Ukraine.
In addition to uprooting the lives of Ukrainians and throwing the international order into chaos, the Russian invasion has created a proving ground for some of the most ambitious -- and cynical -- use cases for cryptocurrency. On the one hand, crypto has become a tool for individuals and organizations to provide charitable support and donations to Ukrainians (as well as a new frontier for online scammers). But there are reports of Russian oligarchs using the technology to evade an increasingly aggressive bevy of financial sanctions. We'll also look at the sale of an NFT of the Ukrainian Flag to support Ukraine -- a project backed by a member of the Russian punk band PussyRiot.
Our other stories include scams trying to exploit donations to Ukraine, and how some cryptocurrency exchanges are handling the sanctions against Russia.
Cryptocurrency donations worth millions raised for Ukraine
More than $50 million in cryptocurrency has been raised for Ukraine in the time since Russia began military operations in the nation last week. Many of these donations have been made directly to the Ukraine government. Mykhailo Fedorov, Ukraine's minister for digital transformation, tweeted wallet addresses for cryptocurrency donations, which was also tweeted by Ukraine's official twitter account. Over $47 million in cryptocurrency has been donated in this way, says Elliptic, a blockchain analysis firm.
Read CNET's full story on how Ukraine raised bver $55M in crypto to help resist Russia .
NFT backed by a member of Russian punk band PussyRiot raises $6.7 million for Ukraine
Aside from direct donations to the Ukrainian government, UkraineDAO, an online organization backed by a member of the Russian punk rock group PussyRiot, has raised millions by auctioning a Ukrainian flag sold as an NFT. Contributors were able to share ownership of the NFT, and 3,200 individual contributions took place in 72 hours for a total of $6.7 million in ether.
Scammers trying to exploit the war in Ukraine
If you want to donate to help Ukrainians, it's good to be aware of scams on social media that are using the war in Ukraine for illicit gain. These scams can take the form of fake charities and other organizations claiming to support Ukrainians. Especially when it comes to cryptocurrency, anyone who wants to donate should be careful, as cryptocurrency transactions are generally irreversible and difficult to track. If you're inclined to donate, check out CNET's list of charities and make sure you do your research first.
Read CNET's full story on how war in Ukraine brings out scammers trying to exploit donations.
Cryptocurrency exchanges don't want to bar users in Russia
While the White House hasn't yet commented on this directly, Bloomberg reports the Biden administration has asked cryptocurrency exchanges to prevent Russian people and organizations from using virtual currencies to circumvent Washington's sanctions. Bloomberg cites a White House official saying that American authorities are aggressively fighting any misuse of digital assets to avoid sanctions. Reuters reports that Binance, as well as US-based Coinbase and Kraken have agreed to screen users and block anyone targeted by sanctions, but the exchanges have stopped short of banning all Russian clients. Binance and Coinbase are the two largest cryptocurrency exchanges in the world by market cap.
Top reasons the irs could flag your social security top reasons the irs could flag your credit top reasons the irs could flag your ssn top reasons the irs could flag your email top reasons the irs could be on the verge top theatre schools top reasons the civil war top reasons for divorce top reasons employees leave top reasons people divorce top reasons not to get covid vaccine top reasons for abortion
Top Reasons the IRS Could Flag Your Tax Return
Top Reasons the IRS Could Flag Your Tax Return
This story is part of Taxes 2022, CNET's coverage of the best tax software and everything else you need to get your return filed quickly, accurately and on-time.
According to the IRS website, an audit is simply a review of accounts and financial information "to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct."
But many taxpayers live in fear of being audited or receiving any sort of feedback from the IRS other than a confirmation (or refund). Audits can be triggered at random, but certain kinds of taxpayers -- and certain behaviors -- are more likely to raise red flags with the agency.
Below, we've spoken with tax experts about the chief mistakes people make that generate more scrutiny from the IRS. We'll also explain what you can do to avoid making errors and how far back into your records the agency will look.
1. You have missing or mismatched paperwork
"There's no one single thing that automatically triggers an audit," said Jo Willetts, director of tax resources at Jackson Hewitt, "but mismatched documentation is the most common reason why you'll get a letter from the IRS."
It can be as simple as a missing form, she said, "and often it happens to people who rush around at the last minute."
Last year the federal government offered a variety of financial support programs to offset the economic effects of the pandemic, notably the child tax credit, the earned income tax credit, a third stimulus check and the American opportunity tax credit, which allows you to claim up to $2,500 in education expenses.
But you have to show you legitimately qualified for these benefits, Willetts told CNET.
"If, last year, you claimed no child tax credit and this year you claimed three kids and they're not babies, it's going to trigger a letter from the IRS," she said.
That doesn't mean you're always in the wrong: You might have had a child in May 2021, and the IRS is working off information it has on you from 2020.
While the EITC is aimed at lower-income households, taxpayers who claim it are among the most likely to be audited, accounting for nearly 31% of all audits over the past 10 years, according to a 2021 report from the US Treasury Department (PDF).
That's because fraud is so rampant, according to the IRS: Some $16 billion, or 23.5% of EITC payments, were improperly paid in fiscal year 2020.
2. You made a mistake with the math or data entry
While simple math errors won't usually trigger a full-blown examination by the IRS, they will garner an extra look and slow down the completion of your return, even if the error is in the IRS' favor.
So can entering your Social Security number wrong, transposing the numbers on your address and other boneheaded blunders.
Filing electronically cuts down on these foul-ups by pulling a lot of information from previous returns and letting you load your W-2s or 1099s directly into the system.
Using a professional tax preparer is also a good bulwark against mistakes and miscalculations.
3. You're self-employed
"If you work for yourself and have legitimate business expenses, you should feel empowered to take them," said Lisa Greene-Lewis, a TurboTax tax expert. "Just make sure you have receipts and documentation to back it up."
If you claim the home-office deduction, it has to be a space used "exclusively and regularly for your trade or business" -- not the dining-room table.
If you claim transportation expenses, you'll need documentation of the mileage used for work: If you deduct 100% of your personal vehicle as a business expense, it's going to raise a flag.
The largest percentage of Americans who are audited make over $1 million.
Sarah Tew/CNET
Being diligent is especially true when deducting business meals, Greene-Lewis added.
In the past, they were only 50% deductible -- now you can now claim 100% of the cost of a business meal, "but you have to document who you are with, what the purpose of the meeting was, the date of the meal, and so on," Greene-Lewis said.
"And of course, keep your receipts," she added.
Read more: Best Tax Software for Freelancers, Gig Workers and Self-Employed
4. You make a lot of money, or no money at all
Higher-income taxpayers are more likely to be reviewed, said Willetts, "but we're talking less than 1% of the total population."
According to the IRS, 2.53% of those earning between $1 million and $10 million were audited in 2015, and 8.1% of Americans who made $10 million or more were.
That compares to less than 1% for all the income brackets under $1 million that year.
The one exception was those declaring "no positive income," 4.47% of whom were audited. A negative income could be the result of capital losses or declared business expenses, which the IRS will want to scrutinize.
You're in the safest position if your total household income is between $25,000 and $200,000, according to the agency. Those taxpayers were audited the least.
5. You claim too many business expenses or losses
You are required to file a Schedule C form if you have business income, but it complicates your return and can make you more likely to be contacted by the IRS.
Greene-Lewis encourages taxpayers to claim every deduction they're legitimately entitled to. But, she adds, you have to be extremely diligent in justifying those deductions, providing details and supporting paperwork.
The IRS' computer system is looking for deductions that are outside the norm for people in your profession.
Angela Lang/CNET
By and large, the IRS algorithm is looking for deductions that are outside the norm for people in your profession: If you're a patent attorney but your travel expenses are three times what other patent attorneys claim, it could lead to closer inspection.
And If you've taken a loss on your business for several years in a row, the IRS might want to make sure your business is above board.
According to Thomas Scott, a tax partner at Aprio, small business owners who keep sloppy records often make "frivolous business deductions."
"When the business owner makes up expenses and deductions, they tend to stick out," Scott told CNET. "Under an audit, the IRS will require support and proof of deductions and if not provided these deductions will be disallowed."
On a similar note, Scott added, "businesses that try to take incentives and credits that they don't qualify for may cause a red flag."
6. Your charitable deductions are outsized
If you itemize your deductions, you can claim cash donations to recognized charities -- as well as the value of a donated car, clothes or other property. But the IRS notices if these donations "seem out of whack with your income," says Greene-Lewis. The agency's computer system, called Discriminant Information Function, continuously scans tax returns for anomalies.
"If you say your salary was $50,000 last year, but you claimed a charitable deduction that's, like, half your income, it's going to catch their eye," Greene-Lewis told CNET.
For the 2021 tax year, the IRS actually suspended the typical limits on charitable contributions: Individuals are allowed to deduct charitable contributions worth up to 100% of their adjusted gross income.
But doing so is likely to draw scrutiny, so you better have all your paperwork in order.
7. You have undeclared income
This is the big one: Employers are required to file a W-2 with the IRS that reflects your earnings, or 1099s in the case of freelancers and contractors who earn more than $600.
The agency's computer automatically checks to see that your reported income matches up to what your boss submitted.
It also gets notified of interest or earnings from savings accounts, investments and stock trades, too -- as well as large gambling wins, inheritances and almost any other kind of income. If you fail to report capital gains on cryptocurrency trades, it could trigger an audit.
Even if you work in a cash business -- say, as a waiter or babysitter -- unclaimed income can catch up to you.
"If someone is bringing their child to you to care for, they're probably claiming your service on their taxes. So you need to make sure it all aligns," says Willetts. "Even a small business like a house painter will require you to be bonded. That will eventually cross the IRS's desk."
For instance, if you declare $20,000 in income on your tax return, but when you apply for a home loan backed by the Federal Housing Administration, you put down $80,000. "These departments talk to each other and eventually it's going to get you caught," Willetts added.
According to Aprio's Thomas Scott, small-business owners who don't keep good records also tend to underreport -- a major audit risk.
"Because the business owner hasn't kept up with their income for the entire year, when it's time to file their taxes they tend to estimate," Scott says. "The problem with this approach shows up because most of the income earned has been reported to the IRS on a Form 1099. The IRS can match the income reported on the owner's return to the income reported on Form 1099s."
The IRS also accepts tips from concerned citizens: Your disgruntled co-worker or aggrieved in-law may be only too happy to report you for tax fraud, especially since the agency's 2006 Whistleblower Program increased incentives to potentially between 15% and 30% of the proceeds the IRS collects.
The three kinds of 'audits'
Typically, the IRS sends three different kinds of notifications: Adjustment letters, correspondent audits and examination audits.
Adjustment letters simply let taxpayers know they owe additional money or that there is a change in their refund amount, typically because of a miscalculation.
"People get a letter from the IRS and they automatically freak out and think it's an audit, but it's really just an adjustment letter," said Greene-Lewis.
A correspondence audit is a bit more involved: It lets the taxpayer know additional documentation is needed to complete their return. The IRS might ask for receipts, bills, employment documents, canceled checks, legal papers, loan agreements, shareholder reports or even ticket stubs.
An examination audit is what people are really scared of, but less than 1% of Americans are audited in a given tax year, said Willetts. "Generally the IRS says 'If you have the documents, send them to us.'"
If you do receive a letter indicating the IRS is conducting an examination audit, you might want to solicit a professional, she added.
The process may be conducted through the mail, or more rarely, in person. (In March 2020, the IRS suspended face-to-face examinations because of the COVID-19 pandemic.)
When the audit is completed, your IRS auditor will determine what's required to rectify the situation. If you disagree, there is an appeals process.
Some of the things that get flagged by the agency are no big deal, Willetts said, "and the IRS is not always right -- or not fully right." In 2018, 30,000 of the million or so audits conducted resulted in taxpayers getting additional money back.
"It's always a pleasure to resolve an issue with the IRS when it's the taxpayer's favor," said Willetts.
How far back can the IRS go to audit a return?
Generally, the IRS will include returns filed within the last three years in an audit, with most audits of returns from the last two.
"If we identify a substantial error, we may add additional years," according to the agency's website, which adds it doesn't usually don't go back more than the last six years.
If an audit is not resolved, the IRS may request extending the statute of limitations for assessing additional taxes and fees, which is usually three years after a return was due or was filed, whichever is later.
The auditee doesn't have to agree to the extension of the statute of limitations date, according to the IRS. "However if you don't agree, the auditor will be forced to make a determination based upon the information provided."
How long should you hold onto your old tax records?
Since the IRS typically looks at returns from the past three years, it's a good rule of thumb to hold onto your records for at least that long.
Six or seven years is fine if you really want to cover your bases. The agency itself says it won't go back further than that.
