September 17, 2025 • 58 mins
As I talk with entrepreneurs and investors, I’m often struck by how many people underestimate the risks tied to crypto investing, especially when it comes to taxes. Right now, the IRS has slowed down audits, but that doesn’t mean the storm has passed. It’s just gathering strength.
Today, I sit down with Janna Scott, founder of DeFi Tax, to pull back the curtain on what’s really happening with crypto tax reporting. Janna shares how she uncovered major flaws in widely-used tax software, why exchange statements can’t be trusted, and how compounded penalties can turn a small mistake into a devastating financial burden.
What I love about Janna’s approach is that she not only sounds the alarm, she has built a blockchain-first solution that ensures accuracy, audit-readiness, and peace of mind.
Whether you’ve dabbled in crypto, trade regularly, or run a business that accepts crypto payments, this conversation is your wake-up call to get prepared before the IRS comes knocking.
Takeaways
Popular crypto tax tools often produce wildly different results (35–120% variance).
Exchanges disclaim responsibility for tax reporting errors, leaving investors liable.
The IRS already has access to transaction data through John Doe summons.
Penalties and compounding interest can double or triple liabilities over time.
State tax authorities are often more aggressive than the IRS.
Middle-class investors are the most vulnerable when audits restart.
DeFi Tax uses blockchain data directly, providing audit-ready transparency.
Having expert representation can mean the difference between resolution and ruin.
Chapters
00:00 Introduction: Why crypto investors face unseen risks
04:12 How Janna discovered errors in crypto tax software
08:45 Why blockchain is the only reliable source of truth
15:30 The IRS admits flawed audits; but investors still pay
27:00 Compounding penalties and the impact on middle-class investors
38:50 State-level tax risks and aggressive enforcement
46:10 How DeFi Tax partners with CPAs and defends audits
53:39 Why crypto taxes (and the IRS) are here to stay
56:08 Final advice: don’t wait for the IRS storm to arrive
About Janna Scott
Janna Scott is a powerhouse in the world of crypto tax compliance and the founder of DeFi Tax. She has worked directly with the IRS and SEC, building DeFi Tax to bring clarity, automation, and audit-readiness to the chaos of crypto profit/loss reporting for tax purposes. Through her tax accounting services and her innovative AI/Blockchain application platform, Janna helps users stay ahead of shifting regulations and out of trouble with the IRS.
🔗 Learn more at defitax.us
About Karen Rands
I'm Karen Rands, founder of the Compassionate Capitalist Movement. I help entrepreneurs prepare to raise capital the smart way and guide investors in identifying startup opportunities that build wealth and make a difference. This show is your roadmap to funding success, from pitch deck to public offering.
📅 Want expert feedback on your pitch? Book a consult with me: bit.ly/KCHcalendar
🔗 Learn more: karenrands.co
🎧 Catch more episodes: thecompassionatecapitalistshow.com
📘 Free eBook: The 4 Ws of Crowdfund Investing: https://bit.ly/FreeCrowdfundInvestingBook
🎓 Join the Academy: bit.ly/CA-prelaunch
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:06):
The Compassionate Capitalist Show empowers entrepreneurs and
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Join Karen Rands, a best sellingauthor, for insights on Angel
investing, crowdfunding, business growth, and wealth
creation. As a seasoned entrepreneur and
investor herself, Karen engages in dynamic conversations with
(00:28):
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investors, and venture capitalists as they share their
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Once you listen, you will understand why this podcast is
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Subscribe and share and be a catalyst for the compassionate
capitalist movement. Just go get it up and go in the
(00:52):
back. And you must keep an open mind
and you try your best just to leave your tracks and do not
fall too far behind. Regret is for the Prince of
heart. In the end, it's all the same.
Take what the wise I've got to in part.
These are the principles of the game.
(01:14):
The principles of the game. Oh, these are the principles of
the game. Welcome to the compassionate
capitalist show. Of course, this is Karen Rand.
And before we get started, I have a big announcement.
If you haven't heard it already,you're not following me on
(01:34):
social media or whatever. The newest book inside secrets
to crowdfund investing follow Jane's journey.
See how a new generation builds wealth with purpose, passion and
profit is out and available on Audible and paperback hardback
coming and I mean I'm sorry, it's on ebook, Kindle, paperback
hardbook and audible is coming and in the first two weeks is
(01:57):
number one for new releases in business investing crowdfund So
very excited about that. You can go all the books are up
under Amazon under my name, Karen Rand or even inside
secrets. Look for that as part of the
title and you'll get them all. So and more's to come on that,
but I wanted to just throw, throw that in there today.
(02:20):
We're I've done a few podcasts in the last month or so about
crypto and blockchain and thingslike that.
And as we are rounding out the end of the going into Q4
quarterly taxes, all that other kind of stuff that business
owners think about, investors have to think about.
(02:41):
It is important because it's always changing to think about
the currency because crypto is acurrency there.
And when you make money on it, just like stocks or anything
else, there's taxes to be paid. And sometimes people don't
really think about it quite the way they did.
And they used to not be a lot ofrules.
(03:02):
Now there's a lot of rules. And so today we're going to talk
about how crypto investors and CPA's commonly trip the IRS
audit triggers, the number one mistake most crypto users make
at tax time, and how my guest's company, Defy Tax is redefining
(03:23):
audit readiness through real time blockchain data.
My guest today, Janice Scott is the founder and a crypto tax
expert at her company Defy Tax, and it is a powerhouse in the
world of crypto tax compliance. Jenna is excellent at breaking
down the complex topics in a waythat's accessible to founders,
(03:45):
CPA's and everyday crypto users alike.
So she's worked directly with. Here's a key thing.
There's a lot of people out there that will say they know
how to do stuff, but if they are, they are they really into
the mechanisms of the organizations and the entities
that actually dictate what the policy is, are the ones that can
(04:08):
come and like put, you know, thehandcuffs on you or fine you or
any of that kind of stuff. So Jenna has worked directly
with IRS and the SEC to build Defy Tax to bring clarity,
automation and audit readiness to the chaos of crypto
reporting. And her latest innovation,
(04:29):
direct blockchain data integration, helps users stay
ahead of constantly shifting regulations.
And she is going to tell us all about how that works.
I don't want to steal her Thunder.
So I'm just going to say welcometo the Compassionate Capitalist
Show Ghana. Great to have you here today.
Nice to be here, Karen. Thank you so much yes, that was
(04:49):
a good intro I'm. Sorry, go ahead.
No, that was a good intro. I love it.
I got to. I got to tell other people to
keep that going. I like it.
Yeah, yeah. So, and, and for those who are
listening, she thinks this podcast, I'm going to give my
myself a plug. And you?
The listeners are so important. It is a deadline day.
(05:10):
And whenever this is actually going to go live, today is a
deadline day in the IRS world. And here she is talking to you.
So, you know, stay tuned for theentire show.
I'm shaking my finger at you. You're not you're not watching
the video. So all right, so let's get into
it a little bit. First of all, because I think
you had a fascinating story fromwhen we talked before.
(05:33):
How did you? Because this is a sort of
uncharted territory for a lot ofpeople.
A whole lot of tax people, accountants, all those kind of
people have no idea about this stuff.
And that's one of the your triggers you talked about,
right? So how did you decide that this
was something that you want to put the stake in the ground to
become an expert in and and talka little bit about your journey
(05:56):
of how you got here today? Yeah, it was accidental.
So I, I didn't mean to and and Ilisten, I regret it every day.
I regret it every day. So I, you know, I've been in
accounting for, for 16 years plus and, and I worked in, you
know, public accounting, I call it the real world and then the
(06:19):
government. And then I worked, worked for
the government. I worked my way up and
eventually I was like, you know,this is just not for me.
I can do a lot more good in the real world.
And so I went back into the realworld and I said, OK, you know,
I opened up a tax accounting firm.
I did a lot of advising and I had clients and then I had a
(06:41):
client approached me in 21 who goes, well, so how do I report
my crypto? And you know, I could smack
myself because I had crypto, nota lot, but a little bit.
And I never thought of it. I don't know why it doesn't
cross my mind. So I was like, well, yeah,
that's that's something I shouldprobably figure out.
So I went on the rabbit hole for, you know, about a year.
(07:01):
Well, initially I went and I, I googled because, you know,
Google, I said, well, what's outthere for crypto taxes?
And I found I came across about 14 products at that time.
Now there's a little bit more than that.
Now, some disappeared, the new came up, but there were about 14
and, and I picked the, the firsttwo I came across and I said,
well, I have my little, my little Coinbase wallet here
(07:23):
that, you know, at that point had about 300 transactions over
a period of five years. Everybody in crypto knows that's
nothing. But I connected it and and I
paid their fee to run, you know,for my taxes and I connected to
the 1st 2:00 and then I was likesurprised because I looked at my
17 and 18 and 19 and 20 and 21 reports that they generated.
(07:47):
And like I said in my, my transactional history was
literally buy, sell, trade, sell.
You know, it was nothing. There was no, nothing bad.
I mean, 300 transactions. There's nothing in the crypto
world. So imagine my surprise when I
look at the reports for for those five years and every and,
(08:09):
and they differed to different products and they were, I mean
they were night and day. They weren't a couple dollars
off. They were 35 to 100 and 2020%
different between the years. Let me just clarify.
So you had two different tools that you were using to see what
they came up with. So like somebody that might go
(08:29):
and do TurboTax or something like that, but something that
involves imagine. Using like TurboTax and H&R
Block and you input your your tax documents and one says you
owe $5000, the other one says you're getting a refund of
$12,000, right? Imagine that, but for crypto
taxes on, you know, on and that makes no sense because you know,
2 + 2 is 4 OK, right. Buy, you know, a cell and and
(08:53):
those, those products also pulled it directly from from,
from the blockchain from Coinbase.
So they pulled it directly. So I was like, huh, well, that's
an issue. And and that's when I went down
the rabbit hole and I went and to all the other 14 products.
I did the other 12 products and I ran my data through them and I
was expecting that at least one of them matched another and they
(09:17):
didn't, none of them matched. And the variances literally were
35 to 120% between all these products.
And you know, I can excuse a couple dollars or a few percent.
Write a margin of error 555 up, five down, you know, but this
was insane. I mean, and I, I remember
sitting there and, you know, of course I did that at 3:00 in the
(09:39):
morning after a lot of coffee and I was just sitting there and
I just like, well, this sucks. What now?
And so I was like, how do I solve this?
How do I figure out who is right, if any?
And so I started downloading from all the products, the data
(10:00):
SCSV files, their data with their, with their, you know,
capital gains and everything. And I went through that and then
I said, no, I need to have something different.
So I went and had and got an APIbill that will let me pull my
data directly from the blockchain as well to see the
raw data. Because going into Coinbase,
what I realized very quickly is if I pull a CSV file, it is not
accurate, it's missing, it's missing data, it doesn't give
(10:24):
you the full picture. And So what I did as I build it
myself and I pulled the raw datamyself from the blockchain and
that's when I sat down, I read through the IRS codes and I read
through, you know, publications,you know, by universities and
everything. And then then my own knowledge
regarding, you know, assets, stocks, etcetera.
And, and I sat down for a couplemonths and I went back and forth
(10:46):
again, 300 transactions is not alot, but it is time consuming.
So I went through and I figured out, OK, I did my own
calculations and then I went back to the products and I
compared. I said, OK, why do they have
this number when I had this trade?
Why do they have this number when I had this cell?
Why do they have this? Why is mine different?
So I went to compared and that'show I figured out what each of
(11:07):
the products were doing wrong, what data they had, how they may
be classified it inaccurately, etcetera.
And so, and listen, I sat down myself and thought and I, I, I
was very sure that I was right, but I said that too.
And I said, these are million, billion dollar products.
How am I getting this right? And they're not, I'm missing
(11:29):
something. I have to be missing something,
you know, how am I getting this right?
And so I kept going and, and eventually I was 100% sure that
I was doing it right and I knew why they were doing it wrong.
So in the beginning of 23, we actually sent through attorneys,
through our attorneys and, and ourselves.
(11:50):
We sent them emails because if Itext didn't exist, we sent them
all emails and we said, Hey, we went through your, your product.
You know, I just do taxes, but Iwent through your product
because I was trying to get it to one of my, my clients to
figure out which one was best. And you're making mistakes that
are detrimental to your users. You know, with the, with the
(12:11):
audits in swing already, we, I want to give you literally the
data at all my research for freeregarding your own product so
you can fix it. I didn't plan on doing anything.
I didn't plan to make money off of it.
I just saw what the damages willbe if it isn't done right.
So a lot of them read it becausewe had read receipts.
(12:33):
Some compliance officers read itand then decided to block me or
they said no thanks, not our problem.
One company met, met with us andI met with the CEO and their tax
attorney and I asked questions and they couldn't answer any of
them. It's like they didn't even know
how to calculate it. And then they tried to sell me
their product and I said, well, no thanks, I don't want your
product. That's the whole point.
(12:54):
I want you to fix it. And around April of 2023, we met
with the SEC, Finn Up Division and a bunch of other division
chiefs and enforcement attorneys, et cetera, to go over
our research. And they said, oh, shit.
I said, well, yeah. And they sent us straight to the
(13:14):
IRS and congressional committees.
So we met with the IRS and the director for the cryptocurrency
and, and a few of the attorneys and we went over our research
again. And then I asked how do you do
the audits? And they said, well, considering
your research, we're doing it wrong.
And I said, well, how do you do it?
And so they explained how they were doing their audits, how
(13:36):
they were collecting data, etcetera.
And I was like, yeah, that's absolutely not accurate.
And they're like, yeah, so they actually stopped.
I got to get some. This is really mind boggling to
me. I mean, if hopefully people are
actually listening and not yelling at the driver that just
went by them, you know, and whatever, cut them off.
Because so all of these organizations that have spent
(14:01):
lots and lots of money supposedly incorporating new IRS
codes, all that kind of stuff, understanding this and the IRS
themselves and your research andyour data was infallible.
They could look at it and go, yeah, like so that that is like
(14:24):
the first, like how, how if theycan't verify, how could they
verify that what you were sayingwas was accurate?
Because I gave them my I, I, I gave them my research.
Because it was like manual you could like you could trace on.
Every Yeah you can. Say you can see what's yeah, you
can see what was happening in the other products worth it were
you know what, what was what wasgoing wrong in those products
(14:48):
yeah. And then?
And was an element of that because the way it gets pulled
off of the platforms is incomplete.
No. SO a lot of those time, a lot of
things are how the data was obtained and how the data was
categorized. Because if the data is not
(15:09):
obtained, the in a specific way data comes over incomplete.
So it was incomplete data. And then do they end up putting
like dummy data into one of the fields and that's kind of what
messes it up or there or because?
Yeah. So it's not going to do with
(15:29):
that. There's some air, some of the
products will actually like add dummy data in order to balance,
but some of the products will let you actually, they say, hey,
this doesn't seem right here. Add a basis to it.
They'll let you manipulate the data yourself, even though what
happens on the blockchain stays on the blockchain, right?
(15:49):
Instead of realizing that there's an error that the
algorithm triggers said, hey, something is missing, you know,
so, so they, they let you do it like, and we'll get to the
features that will exclude any of the products from an audit,
even if they were 100% accurate.But the IRS basically the way
they were collecting data and handling data was, was from the
get go flawed. So, so they weren't able to do
(16:17):
their calculations on their end even accurately.
So and, and they, they, you know, they admitted that and
they stopped the audits. And so during that time we also
met with congressional committees and them our
research, we met with universities who are actually
working with the IRS and we handed them in 23 hour data.
(16:40):
Took them about two years to go through all my data and verify
everything. And, and they just published not
just, but in April and in July things were published on fax
notes about my research, validating it, validating it
all. But I was right, and I know.
(17:02):
I mean and then. And then in 2024, the
universities actually called me,said, hey, the IRS tried to
start audits again. We used your research to show
them that they can't because they're still doing it wrong.
So that's nice. And they still haven't started
the audits. But one thing people have to
understand is in 21, the IRS received permission from the
(17:24):
Justice Department to send out what's called 1000 John Doe
summonses. You can Google it.
OK. Right.
So what that means is any, any US taxpayer, whether they're
citizen national green card holder, whatever 10 holder,
whatever it is, any US taxpayer who touched crypto via at KYC
(17:48):
platform, whether it is Coinbasecrack and Robin Hood finance,
etcetera, etcetera, or on a decentralized platform when they
use something like moon pay, something that needed a
verification, right? They now have your, your
information, they know you touched it and they just a
couple months ago received a third round back updating what
(18:12):
they already knew. So anybody who touched it now
has started new, right. So you are now on the they have
a list. So it's not so much, you know
said earlier, it's not so much that any CPA or individual or
business does anything to trigger an audit.
No, they already know who you are.
They already know you have it. They're already well aware of
it. So that and that's what they
(18:35):
based their initial audits on. Then they stop the audits, but
they're going to come back because, listen, between 09 and
2023, they had already missed out on about $146 billion.
In capital gains. Taxes and income from crypto
that they didn't, you know, weren't able to tax because
people didn't know how to report, didn't want to report,
(18:57):
whatever it is. That's why that little box on
your return in 2021 popped up asking, you know, did you buy or
sell crypto this year? You know well that is also a
protection because if you check no and they know you had it,
they can try and get you for taxevasion because you officially
lied on your tax return. Wow, now they're that may come
(19:20):
back to buy to few people. Yeah, so.
So no, I don't know how you knowhow hard they'll like go after
it. We'll see it.
But you know, and I mean. Yeah, it'll be interesting to
see because we have, you know, now they're trying to, you know,
do some things to make crypto a lot more like independent of of
(19:43):
our Financial Policy and stuff. It doesn't matter though,
because tax code, even if they change tax code, even if
President Trump would come tomorrow and say crypto is no
longer taxable, it wouldn't change the fact that up until
24, the tax year, 24 crypto was taxable.
Right, because you don't change tax codes backwards.
(20:04):
Could you imagine the disaster if you could change the
backwards? I mean, you know, oh, look, you
benefit from this. Nope, we're making it backwards,
not, you know, so it doesn't work, that one.
So even if that would happen right now.
Now I do have to say I was very happy when in April President
Trump signed something up against the 1099 DA's and I
(20:27):
don't know if he knew why he said no.
Maybe he said no because he didn't want no oversight or
whatever it is. But the reason why I'm happy is
this. So imagine you have a Coinbase
account. Imagine you bought $2000 worth
of Bitcoin. Imagine you know you bought it
beginning of 24 and end of 24. Oh my God, crypto exploded and
now it's $10,000 worth short term, right?
(20:48):
Remember that? So you say, great, I have
$10,000 now I would like to sendthis though to Robin Hood
because on Robin Hood I can, I can do like a bunch more things
with crypto that are not that you can't do on Coinbase.
So you say, yay, I'm going to send this to my Robin Hood
account. So technically stating if you
send money between one of your checking account to another one
(21:08):
of your checking account, it's not income, right?
Nothing taxable. However, do you think Coinbase
and Robin Hood communicate with one another?
No, they're competitors. So let's say from Coinbase, you
sent now $10,000 worth of your Bitcoin to Robin Hood.
Coinbase says, oh, look, $8000 of gain because the send
transaction essentially is a taxable event.
(21:33):
Coinbase doesn't know that. You send it to Robin Hood, which
is your own account. They don't know.
They know it left. OK, so Coinbase is going to say,
oh, look, $8000 of gain. We're going to report that on
the 1099 DA to the government. Great, Robin Hood is going to
say, because based on IRS codes of receiving crypto is income.
So Coinbase is going to say, oh look, $10,000 worth of income.
(21:54):
I'm going to send a 1099-DA to the government now, the
government says. Hey, you got to.
Report $8000 of short term gain taxed at 28 to 37% and $10,000
worth of income on a non taxableevent.
But if you call the IRS and you say, hey, no listen, this isn't
right. This was a self transfer.
(22:16):
They said, well, you got to talkto Coinbase and you got to talk
to Robin Hood. Have you ever tried contacting
Coinbase? So that is why I'm happy that
President Trump in April was able to stop the 1099 DA's
because could you imagine a the billions of 1099 DA's that would
have that would go out every single year and how most of them
(22:39):
would be incorrect? And how do you fight that?
You can't, how are you going to fight that?
You know what I mean? You can't get a hold of
Coinbase. Now try to get a hold of
Coinbase when you when there's millions of incorrect 109098.
So you know, that's one of one of my like that I was happy that
(23:00):
that wasn't happening. Now, now the IRS comes back and
tells all the exchanges to trackthe basis of crypto, which let
me tell you, this is one of the issues I'm having with that.
So there's exchanges out there who will calculate your taxes
for you, right? So for the exchange
specifically, not for all your other other platforms to use,
(23:21):
but for the exchange specifically.
And I tested them. I created a little test.
I've created test wallets and exchanges everywhere.
And so I tested on one and it's one of the most used exchanges,
I think. And they also endorse 2 of the
top multi billion dollar crypto tax products on the market.
(23:42):
They not just endorse them, theyown parts of them, they're
shareholders in them. OK.
So they endorse them and their shareholders.
So you know, kickbacks, revenue,whatever.
But my assumption would be, and that would be, you know, an
assumption that anybody should have is if you're an exchange
(24:02):
and you endorse 2 of the crypto tax products, whatever the tax
numbers are that you're giving me should match the products
that you have. You have.
Partial ownership in and you're endorsing me too, right?
I mean, it would be easy. 24 this is this is my real numbers
in 24 I looked at and you can test this all I mean literally,
(24:24):
you can verify it by using it yourself.
Go log in and do this. I looked and I said OK, the one
exchange told me you have $99.00of gains on our data.
Again, remember small transactions.
I said OK, great. So then I connected it to the
one product that they're endorsing that they're that they
own and that product told me on my little 6070 transactions, OK,
(24:48):
said you have gain of $2990.00. OK, that's a little bit
different, right, Considering it's, it's literally 70
transactions of buy, sell, buy, sell, trade, trade, buy, sell,
right. Then I go to the third to the
second product that they're endorsing and own I have part of
ownership in and get the same data out through API or two and
(25:13):
it tells me you have a loss of $351.
Where's the new? Building identified way back
when. Yeah.
You're still, you're seeing in like current terms even though
they. Yeah.
So yeah. Were those two of the companies
that you had gone to to show them your data?
Yeah, yeah. OK.
Yeah. So, well, let me let me
(25:35):
backtrack. So let me tell you why I decided
to develop my own product. And and you know, my business
partner says because I say I'm stubborn, right?
I'm petulant. I get like really like fine, if
you don't do it, I'll do it right.
But in 23 at the beginning of 20-3, about six months after we
(25:58):
tried to give them our data and had met with the IRS and the SEC
and everything. So in quarter 3 of 20, like the
end of quarter three, beginning of quarter 4.
So buddy, listen about four about about two years ago,
right, about two years ago now, I went ahead and I pulled the
virus, the reports again to see if if you know to track their
(26:20):
data. All but one of the products who
we who we send it to. I'd read, read receipts, try to
fix their own mess. I've just given it to them for
free, but they tried to do it themselves without telling their
users. So this is where the issue comes
in. They try to fix their own
(26:41):
algorithms. They didn't fix crap, right?
They didn't. They made it.
I mean, they didn't make it better or worse.
It's still wrong, period. But now imagine this, anybody
who used these products for 22 or 21 and 2020 and 2019,
whatever. Now if you sign on now that
(27:02):
report that you used back in 22 and in 21 and in 20, that report
doesn't match what you actually used on your tax return anymore.
And, and we scoured because we've been signed up for
newsletters for all of them. We've scoured it, we've looked
they didn't send anything out and how easy would have been to
say, hey, the IRS made some changes to the tax code.
We had to make some changes to our algorithms.
(27:24):
Please review what you know whatyou have so you can Nope.
So that's when that. Seems almost like there's a
liability there for you know. You want to hear liability,
Let's I'll, I'll give you, I'll give you more details on that.
So, so that's when I said, you know what, screw this.
I'm just going to do it myself because obviously everybody just
cares about a dollar. You know, they want to make
(27:44):
money. They don't care about the
damages. And we'll go over what the
damages are. And people need to wake up and
realize this, you know, they, they, you know, every time a
disaster happens, people always act like, Oh my God, I didn't
see this coming. Well, then yeah, you did just
pay attention. You know what I mean?
Like your kid like goes upside down, down, you know, from the
slide and snacks, the head open.It's like, Oh no, how'd that
(28:06):
happen? Kid went upside down, down the
slide. That's, you know, but but it's
easier to, you know, and even even even large media outlets
that have been working with us, you know, told us very
straightforward, this is going to be bad.
This is going to be ridiculouslybad for the public.
But hey, we're going to wait until people are actually going
to be damaged before we publish something.
(28:29):
Major news outlets, major ones, national ones are interested.
That's their response. We'll wait until people
actually, you know, in pain fromthe financial damage that
they're going to incur by from this.
That's another story, so. This.
Year when I came across that issue where you know the major
exchange and the two products that that are connected to them,
(28:54):
I said, you know what? My attorney sent out a very
detailed outline of the negligence and lack of due
diligence that they have done and the issues not threatening
like we wanted an open dialogue.Less than 36 hours, this
multibillion dollar massive exchange, the first time in
(29:15):
eight years, less than 36 hours after they received our letter,
change their terms of services for the first time in eight
years to exclude class actual lawsuits, make arbitration
mandatory and take away all their liability for their tax
calculations and any third partytax.
Calculate calculators that they're that they're endorsing.
(29:35):
That they're endorsing even I yeah, I don't even know if
that'll hold up right, but that's weird.
But. If you didn't, if you didn't
sign, well, if you didn't sign they, they would close your
countdown. Yeah, but that doesn't limit
their liability. They close your account down on
something like that. It's like when you look at all
the stuff that's happening with credit cards right there,
(29:58):
there's there seems like there'sa never ending cycle of class
action suits against predatory policies or incomplete or, you
know. You know, I mean, it's not going
to hold up, You know, it's, it's, it's, it's absolutely.
But but you see what I'm saying?It's, it's look, I'm, I'm who am
I? You know, I'm not a billionaire.
I'm not a millionaire, right? Like, but I'm trying to fix
(30:23):
something and I wasn't being mean about it.
But I've seen so many people like, OK, let's imagine this.
Let's imagine we have the middleclass we have, we have, you
know, I don't know John Doe overthere in 19 he, he, you know, 18
he bought some crypto, you know,and 19 it like went crazy.
(30:44):
And let's say he made $50,000, OK, and he sold it and he sold
it, you know, he held it for less than a year because crypto
really went crazy in that year. And he made $50,000 and he goes,
yes, so he has $50,000. Took his family on a vacation,
bought a new car, paid off some credit cards, right?
But he didn't record it because he didn't know how to.
(31:04):
Now, let's say the IRS comes nowand says, hey, you're on the
list. We're going to audit you now.
And hey, you didn't pay. Let's say he had, you know,
let's, let's be nice and let's say, OK, he had, he had, he had
28%, right? He had 28% on, on his $50,000
because he didn't have a high tax rate, right?
So he had, he had 28%, he had, he would have voted like
(31:27):
$14,000. But John Doe, you know, he has
two kids, he has a dog, he has acat that always gets sick
because, you know, hairballs and, and he is married, you
know, stay at home mom. And, and now he, he relies on
his, his refunds every year because that's how he, you know,
pays for his kids to go to karate or gets his car replaced,
(31:47):
you know, his tires replaced, whatever it is.
Or maybe they take a vacation. Like we all know it, right?
We all know the struggle. So now, now he gets a bill.
Now they say, OK, listen, it's been 6 years, let's say the
audit in this year, right, It's been 6 years since since you
since you made that 14, you know, since you owed US $14,000
and that's. The lower right right they
(32:08):
compounded. And they compounded at between 6
to 8% interest. Well, we'll wait then we have
the underpayment penalty, we have the accuracy related
penalty, the late payment penalty, we have all these
penalties. And then that $14,000 is going
to easily turn into what, 2835 thousand dollars?
Well, now he says, oh crap, whatam I going to do?
(32:30):
Well, we can put you on a payment plan because it's under
$50,000 that you owe us. We can put you on an easy
payment plan, pay us $500 a month, 200 three, $100 a month,
right? What John doesn't realize is the
interest is still going to compound on all of it, including
penalties. So you're making these payments?
We think the the financial aid crisis for college is bad
(32:53):
because they were compounding interest for 15 years as people
were paying for it and they end up owing five times what their
initial principle was. But that's.
Where you're going, that's what's going.
To happen. Well, well.
The thing is this Oh my God. They're going to, they're going
to file their taxes. They're going to file their
taxes. And Hughes thinks, oh, I'm not a
$5000 tax return. No, you don't.
It's not going to be added. You're not going to see it for
(33:14):
the next 5-6, seven years because it's going to be used to
lower, to lower what you owe them, what you owe them after
the compounding. I mean, now John could go and
get a loan because let me let's be clear, how many companies
will come out of the woodworks and offer quick loans to pay off
your IRS debt with like, you know, 34% interest rate?
(33:35):
It's not going to be any better,right?
Yeah. Oh my God.
And I'm just thinking about thatbecause you know, as I, I, you
know, struggle to create awareness about the ability to
invest in entrepreneurs in crowdfunding or Angel investing,
right? Talk about that.
And you know, we're talking partof what I do is compared to
(33:57):
crypto investing, right? Because crypto is more known,
there's more word of mouth on crypto than there is on
crowdfund investing. And you know, I have this, the
three ways they're different, the three ways they're alike.
And it's one of the ways that they're alike is that anybody
over the age of 18 can do it Andthere is no limit on like no
(34:20):
income issue now with Reg CF just like there never has been
with crypto. And and so you and part of the
reason why the SEC and all of their wisdom has established
this accredited status and. People.
From being able to invest like millionaires have for you know,
(34:42):
I. Mean it's a.
Protection. You know I.
Can see. I see.
Why? Because it is, yeah.
They don't think they're sophisticated enough.
That's a big old battle that's going on right now.
I don't. Think it's so much the
sophistication because I see it I work with a lot of people like
right it is it is yes, one side of sophisticated, but the other
side is too. Can you imagine if you're
experience, if inexperience is some of these people, they're
(35:05):
amazing talkers. They will come and sell you a
freaking self drying towel rightThat mean like they don't die
themselves and people will come and be so excited about it.
I've seen it, you know, and so, you know, I've seen people go
bankrupt because they invested in the wrong things.
And I always say if it quacks like a duck and it looks like a
duck and walks like a duck, it'sprobably a freaking duck, you
(35:26):
know, So doesn't exactly right, Right.
Exactly. Not to invest it, yeah, yeah,
that's a whole nother conversation.
But but yeah, my point is, is that they, the SEC and FINRA and
the US Treasury. Oh yeah.
Oh yeah. Oh yeah.
That, oh, crypto doesn't really matter.
(35:48):
We'll let everybody do it, but we want to inhibit.
We don't want to give any, we don't want to give any guidance
either. You know, if we come up and and
and try to fight you for it, butyou know, we're just gonna yeah,
no, I get it. I get it.
But that's. Created a a bigger hornet's nest
now. Oh yeah.
Because of it being an actual currency that's a, you know, a
(36:10):
taxable, these taxable events and you know, they, But people
are unsophisticated with understanding that they're not
out there trading dollars for EUR or doing anything like that
and playing the monetary policy which, you know, it requires
that they, everybody knows there's a level of
sophistication in that and it's a bigger barrier to entry to get
(36:31):
into it than it is in crowdfunding.
So you've got a whole lot of people that jumped on a
bandwagon that now have this potential huge amount of
financial risk on them that theythey had no.
Well, it's a waterfall effect too.
Like if you look at it right, ifyou look like, you know,
remember John, John is going to sit there and he's not going to
(36:53):
know how to deal with the IRS. He probably used TurboTax.
He probably is not, doesn't haveanybody to really help him,
right? And that's where we're going to
mirror the ERC credits, all these companies that came out of
the woodworks and said we're going to help you file your 941
amendment, we're going to help you get.
These. Hundreds of thousands of dollars
back. You just have to give us 25% of
(37:15):
it. They filed all of them.
You know how many? And they got all paid out
because it was the crisis, right?
Everybody needed money. The money was.
Supposed to get paid out withoutreally reviewing these. 940 ones
and now millions of people have to pay them back.
But these companies that took the 25%, they're long gone, long
(37:35):
gone and they fought filled themout inaccurately and they have
to pay it back 100%. Doesn't matter if those
companies took them 25% or not. And so this is the same thing
because listen to this, after weaudited those 14 software
products, we went ahead and audited 53 of the of the
so-called crypto expert, like tax experts, legal experts.
(38:01):
We audited all these law firms, these accounting firms, CPA
firms and we audited them by becoming their clients.
We said, here you go. We have, you know, at this point
maybe like 6-7 hundred transactions, I need to know
what it is. They charged us 3 grand, three
or more grand for that many transactions.
The fun part is this 8 They asked us for it in CSV file form
(38:25):
which immediately I was like doesn't work.
Or they ask us to connect to oneof those products which
immediately tells me it's not going to work.
Or they took it and then ran it through the one of those
products and gave it back to us in a nice pretty looking excel
sheet and charged me 3 grand butnothing accurate.
(38:45):
Nothing. So now we're back into the same,
in the same position. Now John needs to find somebody.
Somebody is going to come and say, hey, I'm going to charge
you 345 and then the more money you have, right, 6789 ten, $1000
and I'm going to defend you in front of the IRS.
OK, Let me tell you how that's going to go.
The IRS is going to come and saywe looked over everything.
(39:08):
You owe us $14,000 plus interest, penalties, etcetera.
Whoever is representing you is going to be like well, OK, no,
he doesn't. Well prove it.
Well, here's one of the productswhere we ran the reports through
and it's only says he owes 8000 or $5000.
They say that product is not audit, is not allowed in an
audit, just like QuickBooks is not allowed in an audit because
(39:30):
it can be manipulated. And now we get to the features
that I spoke to earlier. Even if these products were 100%
accurate, you would not be able to use them in an audit because
we talked about this a little bit before we came on using
blockchain for voter, voter, youknow, like can I think of the
word verification? Because what happens on the
(39:53):
blockchain says on the blockchain can't be changed.
So what do these products do? Because they did not actually
verify what data comes over via the API, they didn't classify it
correctly. They, they don't know what
they're doing with this raw data.
They're letting you handle the raw data, they're letting you at
(40:16):
the basis, but they're giving you the option to do edit a
transaction. And I'm not just saying editing
it like, you know, like saying it was actually a self transfer
instead of a receipt for income purposes.
No, no. Edit the date, the time, the
currency. Imagine it, you have a, you have
a Bitcoin trade that generated $50,000 of capital gains.
(40:38):
You can go on there in those products and edit it and say it
wasn't Bitcoin. I'm going to make this Ethereum.
And the spot price wasn't 100 grand, it was $30,000.
They can only do that. No, I mean, no, that's fraud,
right? But like technically, like if I
sell, it used to be that in order to get around paying for
(41:00):
your sales tax, your car tax on a car, when you bought a
secondhand car, you would do thepink sheet transfer at a dollar,
right? Right.
Yeah, yeah. Now you can't do that anymore
because the states want to collect their taxes on it.
You know, it's not so much fraud, it's just they're going
to this, it's like QuickBooks, right?
So if you use QuickBooks for your bookkeeping needs, you do
(41:23):
adjust the general entries, entries that don't didn't show
up on your tax return because you have depreciation, right?
And depreciation obviously doesn't show up on your bank
statements, right? Or maybe you paid somebody out
of cash, You know, you make adjusted Germany.
But again, it can be manipulated, which is why you
cannot use it in an audit. They want your bank statements.
(41:45):
So what the IRS will want is theactual, you know, blockchain
data and not a product that allows you to change.
Imagine going to your bank and saying, you know, I wrote this
$10,000 check, but I think let'sremove a couple of zeros and
instead of dollars, let's make it yen.
(42:06):
How would that work for you? But that's what these products
allow you to do. And that's just insane to me,
right? Because, and they have, but the
problem is they have to let you do it because they do not get
the data over accurately and thealgorithms in the back are not
set because they didn't do double checking.
They didn't create data on any of and all of the exchanges and
(42:30):
block chains that they're utilizing to see how it comes
over. We did.
That's why it's been a pain in the ass and that's why I hate it
every day that I decided to do this because I'm a perfectionist
and I don't like doing somethinghalf ass.
And so I have to consistently create more wallets and more
exchanges and run data through in order for my developers to
pull the raw data to see what comes over, which is how we
(42:51):
discovered that none of the products ever catch validator
accounts, pretend that they don't exist.
They can't do it. You know, none of these products
can follow the basis of an NFT unless you bought it.
There's so many things that theydon't know how to do because
they didn't put the effort in it.
And, and my biggest problem is these products are literally
(43:12):
worth 2 to $3 billion billions. They have taken money out of
people's pockets who thought they're going to do the right
thing by reporting. And they've either under
reported or severely over reported.
Either way, they either overpaidor they underpaid.
The problem with this is get this, let's say you overpaid.
(43:36):
Let's say you overpaid. The IRS will not waive the
three-year statute of limitation, which means let's
say they audit you for 2019 and they say, oh, look, you
actually. I just lost your sound.
Sorry for that little technical glitch, everybody Jan is going
(43:56):
to wrap up talking about this issue with tracking that
transactional part of this and then we're going to get into the
solution because we talked a lotabout problems.
So here's the the solution, but it's important understanding,
you know, crypto, you know, as you're buying and selling,
there's this little piece of thetransaction and sometimes a
(44:16):
portion of your of that benefit,if you will.
I mean, you took out bit mine immersions, right, They air they
take a tiny bit as their paymentalong the way and that gets lost
in the shuffle in regular reporting on of accounting.
That needs to be a big piece of that.
That was a part she was talking about.
So pick up on that you just. Have to be able to, you know,
(44:38):
everything has to be caught because there's a big picture,
right? And if you only look at half of
the picture, it could be more beneficial or less beneficial.
And what I was saying is, you know, like these products are,
so they vary so much that on onehand you can be over reporting,
on the other hand you can be under reporting.
Now let me give you the issue. If you're over it for the audit
(44:59):
purposes of under reporting, there's no statute of
limitation. They can audit you for the next
1015 years if they want it. Now let's go to the issue of
you. Let's say you use the product
for example, that said you had $29190.00 of gains when you
didn't and you reported that andyou overpaid now and they audit
you and they say, oh actually you overpaid.
But guess what? You're past the three-year
(45:19):
statute of limitation. You're not getting a refund.
The IRS will still get their money if you're underpaid, but
you're getting your money back if you overpaid.
So, you know, talk about fairness.
But yeah. And so, so I was getting so
frustrated with a, what the consequences are going to be for
individuals, businesses, you know, for for, you know, look at
(45:44):
all the accounting firms. None of the Cpas will be able to
truly defend their client because they're not going to be
able to use anything that's out there.
Now that's, you know, again, like I said, stubborn, you know,
a little bit of control freak sometimes I was like, I'm going
to build my own, I'm going to doit right.
And so we've built this and, andagain, we're the only program
(46:04):
that's probably peer reviewed bythe by universities has been
published in tax notes as met with the IRS, stop the IRS
audits. And we have put it together in a
way that a individuals will willbe able to utilize it for their,
you know, trading needs and businesses will be able to use
(46:25):
it because in business land, it's the same way you receive
crypto. You have it, it's you, it's
income. If you hold it and you don't
sell it and then, or if you holdit and then sell it, you've got
to have capital gains on the business side as well.
It's the same treatment. However, the benefit you have is
now you get to write up expenses.
So if you pay people in crypto, if you pay individuals in
(46:45):
crypto, whether it's influencers?
Or. Contractors, whatever that's an
expense. So now you get to actually
expensive, right. So you, we've built out a crypto
bookkeeping system for you and we have an accountant financial
advisor platform, meaning financial advisors.
They can oversee your portfolio accountants, they can actually
see and, and review your tax reports or they can help you
(47:06):
with the bookkeeping portion of it, whatever it is.
But they have access to it and you build it out in a way we
have, we are lacking the features that will disqualify
the product for an audit. So plus also I think I think
they know me by now, they might be a little bit annoyed with me,
which is fine. But you know, I have no problem
(47:27):
because we have also added on audit defense for a fraction of
the cost that you will find out there.
We will work with your CPA if you have a full blown audit
because people only handle your crypto audit, right.
If you have a full blown audit and they question your crypto,
you call us in or if you're justsimply being audited for crypto,
we can handle it all. We have tax attorneys, we have
(47:48):
Cpas, we have EA's. We can represent you in front of
the IRS and trust me, I'll have a lot of fun with it because I
will be able to what do we what,what did we learn in math class,
right? Show your work.
I can be able to show my work. I can sit there and if I can, I
can calculate it manually. I can justify why I'm right and
why they're wrong, you know, so.And that is defy tax.com,
(48:10):
everybody DEFI tax.com right? Does that the best way to reach
you dot USDOT US. Well, thank you for correcting
me on that. Let's get that in the right in
the show notes. Defy tax.usisthereadefytax.com.
Yeah, I don't it, it's, it doesn't do anything.
I think it's just like a dead website.
(48:33):
Yeah, to you, Yeah, you have to eventually figure out not get so
famous that they won't sell thatto you.
Yeah, right, right. I like I do caravan dot CEO
because like people have to go. I'm sorry.
Go ahead. Until people start listening,
you know, I, it's just like I can, I can stand up on the wall
and talk to it, you know, and people will listen.
(48:53):
I mean, once, once once they're,you know, they, they're hurt by
whatever is happening, then they'll listen.
Let's come take a while. Yeah, because they don't look
because they're not getting audited now like you said, they
froze it. So they're not they it's a non
issue. They don't know anything about
it. And you know, if it was
something, let's just say my daughter had bought some crypto.
(49:16):
She does the basic online TurboTax, you know, the cheapest
little thing that they can do because she's one of those that
doesn't mate, doesn't do a lot of itemize.
So she goes for the simple and you know, that's probably even
worse for for, you know, the some a lot of the crypto traders
on that stuff. So this is very good.
(49:39):
So if that is so, if you are a business that is taking payments
through crypto or any kind of compensation through crypto, or
if you are buying and selling crypto, then it is in your
interest to go to D5 tax dot US to at least start to better
(50:00):
understand what your risks are, where you are, what you got to
do to circle the wagons to make sure when the IRS turns this
back on, you're in a good position.
Because you know that there, youknow, I, I right now you just
have given me a fear that everything that we are
experiencing and the, the anchorthat it is putting on our
(50:23):
economy's ability to grow is this college debt that's hanging
around so many people's necks that, you know, the IRS stuff.
Yeah, that's going to be a big issue, harder than the college
debt. You know, yeah, because then you
just, you get bad credit, but you can still do other stuff.
(50:45):
The IRS will come in and garnishyour Inc your wages.
This is only considering the IRSthe federal now.
This also hits your state level and states are a lot more
aggressive if you owe taxes. Oh yeah, yeah, that was a thing.
I had to pay the capital gains on selling my mom's house, like
guesstimate on it even before because the state tax would
(51:09):
start calculating and even that 60 days or whatever, I would
have had a penalty. Yeah.
I mean, and they don't always talk to each other because I had
a situation, just a basic thing where I did not know because the
thing was different. And they did.
By the time they got the notice to me nine months later, I was
already incurring charges on that, even though they had not
(51:31):
sent me anything saying that I had whatever it was that it was
at the time that I needed to do and.
That's the penalties, right? It's the penalties that really
will hit you because it will double what you owe in taxes.
And, and then the compounded interest, especially if you're
looking at 3456 years, you know,it's, I mean, I've seen people
(51:52):
who literally have tripled what their tax liability was, you
know, at one point because of it.
And, and again, you know, like our higher, you know, upper
class, like, you know, 1% up there, you know, I don't know
how much that's going to hurt them, but a middle class that's
already strained, you know, it'salready hurting.
(52:14):
They're, they're going to be theones that are going to be in
trouble because they, you know, they made some money here and
there. And because it's also how are
they going to afford having somebody represent them, you
know? Yeah, OK, Wow.
So my head's buzzing, You know, all this stuff, I I'm glad I
(52:34):
don't have this additional risk or concern in the way I made my
investments. But it is something that a lot
of people out there, like almostnearly as many people that have
invested in the stock market have invested in crypto.
So even whether it's a small amount or a big amount and you
know, it's with all the Wheelingand dealing and promoting of
(52:58):
crypto and NFTS are going right now where it's like the wild,
Wild West, who knows what could be the thing you you could
hopefully you got a very scalable solution because I have
a feeling that you're going to be people are going to be
banging on your door when the not so distant future in order
(53:19):
to try to, you know, stay out ofIRS jail.
So maybe not jail jail, but. Financially, for sure.
Yeah, I hear what you're saying.It's yeah.
And I mean, listen, the IRS partnered with chain analysis so
it makes it easier for them to trace all.
Your assets too. Yes, yes, there was a somebody
(53:44):
was just talking about how you call the IRS and you can't get
through right. There is no.
And I was like, I have, I have the.
Professional hotline so I can get through but yes I know it.
Yeah. Well, it's like, you know, when
they think it's, you know, they they cut it in the not even this
current budget, they were supposed to higher up however
(54:04):
many hundreds of agents because they've attritioned out and just
to keep up with the normal thing.
And it was one particular party doesn't did thought that you
know, IRS is bad and therefore we shouldn't have any IRS agents
to help our taxpayers be able tonavigate this.
And so it's even worse than it was the.
(54:24):
IRS needs to stop hugging everybody so nobody has to call
and figure out what the heck they're sending you.
Yeah. I mean, listen, you know, I've,
I've heard it's like, well, maybe they'll get rid of the
IRS. And I was.
Like I, I tell everybody, I said, listen, as much as I don't
like taxes or paying taxes, I like taxes, right?
But paying taxes as much as I don't like paying taxes.
(54:47):
What do you think? Pays for our military and I
really would like to keep our military, right.
Like what do you think pays for all, like, you know, roads on
federal lands and things like that?
Who do you think it's going to pay, You know, pays for?
I mean, we kind of need to pay taxes in order to, you know,
keep certain things going because how many countries would
be happy if we all of a sudden said here military, we don't
(55:08):
have money for you, you all, youknow, free go, go.
Do you think what's going to happen?
You know, so I the IRS is not going to go away.
It's not going to go away period.
I mean, I'm all about paying theright amount of taxes.
You know, it's not overpaying it, but the IRS is not going to
go away and we can't have it go away.
It's, it's, I mean, listen, if we could cut all the freaking,
(55:31):
you know, congressional and likeall of those salaries, all of
those pays, we would already have a lot more money.
Yeah, just an idea, yeah. There's a whole lot of that
boondoggling going on, paying $1,000,000 for a plane that will
never be used by an American president.
Or the lobbyists, you know, stuff like all of that.
(55:52):
I mean, listen, we would, you know, we would have a lot.
Billion dollars. Billion dollars, yeah, Yeah.
So with that defy tax, if you'rea crypto investor, make sure
that you are you got your ducks ducks in a row, because if it
cracked like a duck, it walks like a duck.
It might be a duck and you can get ducked out over your IRS
(56:18):
liabilities if you're not if you're not smart about it, haha,
that was clever. OK, so all right, Janet, thank
you so much for being a guest onthe Compassionate capitalist
show. It was enlightening for me and
I'm certain for the folks that have listened through go to D5
tax dot US and for everything about me, Karen rands.co or
(56:42):
Cougar rand.com, which is on if you're watching right now and
you can get access to the ebooksas well as a just Google Karen
Rands anywhere you can find me pretty much.
So with that, everybody onwards and upwards to have a great day.
Awesome. Thank you so much.
Bye bye. Thank you for listening to this
(57:02):
podcast, The Compassionate Capitalist Show, brought to you
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(58:28):
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(00:52):
back. And you must keep an open mind
and you try your best just to leave your tracks and do not
fall too far behind. Regret is for the Prince of
heart. In the end, it's all the same.
Take what the wise I've got to in part.
These are the principles of the game.
(01:14):
The principles of the game. Oh, these are the principles of
the game. Welcome to the compassionate
capitalist show. Of course, this is Karen Rand.
And before we get started, I have a big announcement.
If you haven't heard it already,you're not following me on
(01:34):
social media or whatever. The newest book inside secrets
to crowdfund investing follow Jane's journey.
See how a new generation builds wealth with purpose, passion and
profit is out and available on Audible and paperback hardback
coming and I mean I'm sorry, it's on ebook, Kindle, paperback
hardbook and audible is coming and in the first two weeks is
(01:57):
number one for new releases in business investing crowdfund So
very excited about that. You can go all the books are up
under Amazon under my name, Karen Rand or even inside
secrets. Look for that as part of the
title and you'll get them all. So and more's to come on that,
but I wanted to just throw, throw that in there today.
(02:20):
We're I've done a few podcasts in the last month or so about
crypto and blockchain and thingslike that.
And as we are rounding out the end of the going into Q4
quarterly taxes, all that other kind of stuff that business
owners think about, investors have to think about.
(02:41):
It is important because it's always changing to think about
the currency because crypto is acurrency there.
And when you make money on it, just like stocks or anything
else, there's taxes to be paid. And sometimes people don't
really think about it quite the way they did.
And they used to not be a lot ofrules.
(03:02):
Now there's a lot of rules. And so today we're going to talk
about how crypto investors and CPA's commonly trip the IRS
audit triggers, the number one mistake most crypto users make
at tax time, and how my guest's company, Defy Tax is redefining
(03:23):
audit readiness through real time blockchain data.
My guest today, Janice Scott is the founder and a crypto tax
expert at her company Defy Tax, and it is a powerhouse in the
world of crypto tax compliance. Jenna is excellent at breaking
down the complex topics in a waythat's accessible to founders,
(03:45):
CPA's and everyday crypto users alike.
So she's worked directly with. Here's a key thing.
There's a lot of people out there that will say they know
how to do stuff, but if they are, they are they really into
the mechanisms of the organizations and the entities
that actually dictate what the policy is, are the ones that can
(04:08):
come and like put, you know, thehandcuffs on you or fine you or
any of that kind of stuff. So Jenna has worked directly
with IRS and the SEC to build Defy Tax to bring clarity,
automation and audit readiness to the chaos of crypto
reporting. And her latest innovation,
(04:29):
direct blockchain data integration, helps users stay
ahead of constantly shifting regulations.
And she is going to tell us all about how that works.
I don't want to steal her Thunder.
So I'm just going to say welcometo the Compassionate Capitalist
Show Ghana. Great to have you here today.
Nice to be here, Karen. Thank you so much yes, that was
(04:49):
a good intro I'm. Sorry, go ahead.
No, that was a good intro. I love it.
I got to. I got to tell other people to
keep that going. I like it.
Yeah, yeah. So, and, and for those who are
listening, she thinks this podcast, I'm going to give my
myself a plug. And you?
The listeners are so important. It is a deadline day.
(05:10):
And whenever this is actually going to go live, today is a
deadline day in the IRS world. And here she is talking to you.
So, you know, stay tuned for theentire show.
I'm shaking my finger at you. You're not you're not watching
the video. So all right, so let's get into
it a little bit. First of all, because I think
you had a fascinating story fromwhen we talked before.
(05:33):
How did you? Because this is a sort of
uncharted territory for a lot ofpeople.
A whole lot of tax people, accountants, all those kind of
people have no idea about this stuff.
And that's one of the your triggers you talked about,
right? So how did you decide that this
was something that you want to put the stake in the ground to
become an expert in and and talka little bit about your journey
(05:56):
of how you got here today? Yeah, it was accidental.
So I, I didn't mean to and and Ilisten, I regret it every day.
I regret it every day. So I, you know, I've been in
accounting for, for 16 years plus and, and I worked in, you
know, public accounting, I call it the real world and then the
(06:19):
government. And then I worked, worked for
the government. I worked my way up and
eventually I was like, you know,this is just not for me.
I can do a lot more good in the real world.
And so I went back into the realworld and I said, OK, you know,
I opened up a tax accounting firm.
I did a lot of advising and I had clients and then I had a
(06:41):
client approached me in 21 who goes, well, so how do I report
my crypto? And you know, I could smack
myself because I had crypto, nota lot, but a little bit.
And I never thought of it. I don't know why it doesn't
cross my mind. So I was like, well, yeah,
that's that's something I shouldprobably figure out.
So I went on the rabbit hole for, you know, about a year.
(07:01):
Well, initially I went and I, I googled because, you know,
Google, I said, well, what's outthere for crypto taxes?
And I found I came across about 14 products at that time.
Now there's a little bit more than that.
Now, some disappeared, the new came up, but there were about 14
and, and I picked the, the firsttwo I came across and I said,
well, I have my little, my little Coinbase wallet here
(07:23):
that, you know, at that point had about 300 transactions over
a period of five years. Everybody in crypto knows that's
nothing. But I connected it and and I
paid their fee to run, you know,for my taxes and I connected to
the 1st 2:00 and then I was likesurprised because I looked at my
17 and 18 and 19 and 20 and 21 reports that they generated.
(07:47):
And like I said in my, my transactional history was
literally buy, sell, trade, sell.
You know, it was nothing. There was no, nothing bad.
I mean, 300 transactions. There's nothing in the crypto
world. So imagine my surprise when I
look at the reports for for those five years and every and,
(08:09):
and they differed to different products and they were, I mean
they were night and day. They weren't a couple dollars
off. They were 35 to 100 and 2020%
different between the years. Let me just clarify.
So you had two different tools that you were using to see what
they came up with. So like somebody that might go
(08:29):
and do TurboTax or something like that, but something that
involves imagine. Using like TurboTax and H&R
Block and you input your your tax documents and one says you
owe $5000, the other one says you're getting a refund of
$12,000, right? Imagine that, but for crypto
taxes on, you know, on and that makes no sense because you know,
2 + 2 is 4 OK, right. Buy, you know, a cell and and
(08:53):
those, those products also pulled it directly from from,
from the blockchain from Coinbase.
So they pulled it directly. So I was like, huh, well, that's
an issue. And and that's when I went down
the rabbit hole and I went and to all the other 14 products.
I did the other 12 products and I ran my data through them and I
was expecting that at least one of them matched another and they
(09:17):
didn't, none of them matched. And the variances literally were
35 to 120% between all these products.
And you know, I can excuse a couple dollars or a few percent.
Write a margin of error 555 up, five down, you know, but this
was insane. I mean, and I, I remember
sitting there and, you know, of course I did that at 3:00 in the
(09:39):
morning after a lot of coffee and I was just sitting there and
I just like, well, this sucks. What now?
And so I was like, how do I solve this?
How do I figure out who is right, if any?
And so I started downloading from all the products, the data
(10:00):
SCSV files, their data with their, with their, you know,
capital gains and everything. And I went through that and then
I said, no, I need to have something different.
So I went and had and got an APIbill that will let me pull my
data directly from the blockchain as well to see the
raw data. Because going into Coinbase,
what I realized very quickly is if I pull a CSV file, it is not
accurate, it's missing, it's missing data, it doesn't give
(10:24):
you the full picture. And So what I did as I build it
myself and I pulled the raw datamyself from the blockchain and
that's when I sat down, I read through the IRS codes and I read
through, you know, publications,you know, by universities and
everything. And then then my own knowledge
regarding, you know, assets, stocks, etcetera.
And, and I sat down for a couplemonths and I went back and forth
(10:46):
again, 300 transactions is not alot, but it is time consuming.
So I went through and I figured out, OK, I did my own
calculations and then I went back to the products and I
compared. I said, OK, why do they have
this number when I had this trade?
Why do they have this number when I had this cell?
Why do they have this? Why is mine different?
So I went to compared and that'show I figured out what each of
(11:07):
the products were doing wrong, what data they had, how they may
be classified it inaccurately, etcetera.
And so, and listen, I sat down myself and thought and I, I, I
was very sure that I was right, but I said that too.
And I said, these are million, billion dollar products.
How am I getting this right? And they're not, I'm missing
(11:29):
something. I have to be missing something,
you know, how am I getting this right?
And so I kept going and, and eventually I was 100% sure that
I was doing it right and I knew why they were doing it wrong.
So in the beginning of 23, we actually sent through attorneys,
through our attorneys and, and ourselves.
(11:50):
We sent them emails because if Itext didn't exist, we sent them
all emails and we said, Hey, we went through your, your product.
You know, I just do taxes, but Iwent through your product
because I was trying to get it to one of my, my clients to
figure out which one was best. And you're making mistakes that
are detrimental to your users. You know, with the, with the
(12:11):
audits in swing already, we, I want to give you literally the
data at all my research for freeregarding your own product so
you can fix it. I didn't plan on doing anything.
I didn't plan to make money off of it.
I just saw what the damages willbe if it isn't done right.
So a lot of them read it becausewe had read receipts.
(12:33):
Some compliance officers read itand then decided to block me or
they said no thanks, not our problem.
One company met, met with us andI met with the CEO and their tax
attorney and I asked questions and they couldn't answer any of
them. It's like they didn't even know
how to calculate it. And then they tried to sell me
their product and I said, well, no thanks, I don't want your
product. That's the whole point.
(12:54):
I want you to fix it. And around April of 2023, we met
with the SEC, Finn Up Division and a bunch of other division
chiefs and enforcement attorneys, et cetera, to go over
our research. And they said, oh, shit.
I said, well, yeah. And they sent us straight to the
(13:14):
IRS and congressional committees.
So we met with the IRS and the director for the cryptocurrency
and, and a few of the attorneys and we went over our research
again. And then I asked how do you do
the audits? And they said, well, considering
your research, we're doing it wrong.
And I said, well, how do you do it?
And so they explained how they were doing their audits, how
(13:36):
they were collecting data, etcetera.
And I was like, yeah, that's absolutely not accurate.
And they're like, yeah, so they actually stopped.
I got to get some. This is really mind boggling to
me. I mean, if hopefully people are
actually listening and not yelling at the driver that just
went by them, you know, and whatever, cut them off.
Because so all of these organizations that have spent
(14:01):
lots and lots of money supposedly incorporating new IRS
codes, all that kind of stuff, understanding this and the IRS
themselves and your research andyour data was infallible.
They could look at it and go, yeah, like so that that is like
(14:24):
the first, like how, how if theycan't verify, how could they
verify that what you were sayingwas was accurate?
Because I gave them my I, I, I gave them my research.
Because it was like manual you could like you could trace on.
Every Yeah you can. Say you can see what's yeah, you
can see what was happening in the other products worth it were
you know what, what was what wasgoing wrong in those products
(14:48):
yeah. And then?
And was an element of that because the way it gets pulled
off of the platforms is incomplete.
No. SO a lot of those time, a lot of
things are how the data was obtained and how the data was
categorized. Because if the data is not
(15:09):
obtained, the in a specific way data comes over incomplete.
So it was incomplete data. And then do they end up putting
like dummy data into one of the fields and that's kind of what
messes it up or there or because?
Yeah. So it's not going to do with
(15:29):
that. There's some air, some of the
products will actually like add dummy data in order to balance,
but some of the products will let you actually, they say, hey,
this doesn't seem right here. Add a basis to it.
They'll let you manipulate the data yourself, even though what
happens on the blockchain stays on the blockchain, right?
(15:49):
Instead of realizing that there's an error that the
algorithm triggers said, hey, something is missing, you know,
so, so they, they let you do it like, and we'll get to the
features that will exclude any of the products from an audit,
even if they were 100% accurate.But the IRS basically the way
they were collecting data and handling data was, was from the
get go flawed. So, so they weren't able to do
(16:17):
their calculations on their end even accurately.
So and, and they, they, you know, they admitted that and
they stopped the audits. And so during that time we also
met with congressional committees and them our
research, we met with universities who are actually
working with the IRS and we handed them in 23 hour data.
(16:40):
Took them about two years to go through all my data and verify
everything. And, and they just published not
just, but in April and in July things were published on fax
notes about my research, validating it, validating it
all. But I was right, and I know.
(17:02):
I mean and then. And then in 2024, the
universities actually called me,said, hey, the IRS tried to
start audits again. We used your research to show
them that they can't because they're still doing it wrong.
So that's nice. And they still haven't started
the audits. But one thing people have to
understand is in 21, the IRS received permission from the
(17:24):
Justice Department to send out what's called 1000 John Doe
summonses. You can Google it.
OK. Right.
So what that means is any, any US taxpayer, whether they're
citizen national green card holder, whatever 10 holder,
whatever it is, any US taxpayer who touched crypto via at KYC
(17:48):
platform, whether it is Coinbasecrack and Robin Hood finance,
etcetera, etcetera, or on a decentralized platform when they
use something like moon pay, something that needed a
verification, right? They now have your, your
information, they know you touched it and they just a
couple months ago received a third round back updating what
(18:12):
they already knew. So anybody who touched it now
has started new, right. So you are now on the they have
a list. So it's not so much, you know
said earlier, it's not so much that any CPA or individual or
business does anything to trigger an audit.
No, they already know who you are.
They already know you have it. They're already well aware of
it. So that and that's what they
(18:35):
based their initial audits on. Then they stop the audits, but
they're going to come back because, listen, between 09 and
2023, they had already missed out on about $146 billion.
In capital gains. Taxes and income from crypto
that they didn't, you know, weren't able to tax because
people didn't know how to report, didn't want to report,
(18:57):
whatever it is. That's why that little box on
your return in 2021 popped up asking, you know, did you buy or
sell crypto this year? You know well that is also a
protection because if you check no and they know you had it,
they can try and get you for taxevasion because you officially
lied on your tax return. Wow, now they're that may come
(19:20):
back to buy to few people. Yeah, so.
So no, I don't know how you knowhow hard they'll like go after
it. We'll see it.
But you know, and I mean. Yeah, it'll be interesting to
see because we have, you know, now they're trying to, you know,
do some things to make crypto a lot more like independent of of
(19:43):
our Financial Policy and stuff. It doesn't matter though,
because tax code, even if they change tax code, even if
President Trump would come tomorrow and say crypto is no
longer taxable, it wouldn't change the fact that up until
24, the tax year, 24 crypto was taxable.
Right, because you don't change tax codes backwards.
(20:04):
Could you imagine the disaster if you could change the
backwards? I mean, you know, oh, look, you
benefit from this. Nope, we're making it backwards,
not, you know, so it doesn't work, that one.
So even if that would happen right now.
Now I do have to say I was very happy when in April President
Trump signed something up against the 1099 DA's and I
(20:27):
don't know if he knew why he said no.
Maybe he said no because he didn't want no oversight or
whatever it is. But the reason why I'm happy is
this. So imagine you have a Coinbase
account. Imagine you bought $2000 worth
of Bitcoin. Imagine you know you bought it
beginning of 24 and end of 24. Oh my God, crypto exploded and
now it's $10,000 worth short term, right?
(20:48):
Remember that? So you say, great, I have
$10,000 now I would like to sendthis though to Robin Hood
because on Robin Hood I can, I can do like a bunch more things
with crypto that are not that you can't do on Coinbase.
So you say, yay, I'm going to send this to my Robin Hood
account. So technically stating if you
send money between one of your checking account to another one
(21:08):
of your checking account, it's not income, right?
Nothing taxable. However, do you think Coinbase
and Robin Hood communicate with one another?
No, they're competitors. So let's say from Coinbase, you
sent now $10,000 worth of your Bitcoin to Robin Hood.
Coinbase says, oh, look, $8000 of gain because the send
transaction essentially is a taxable event.
(21:33):
Coinbase doesn't know that. You send it to Robin Hood, which
is your own account. They don't know.
They know it left. OK, so Coinbase is going to say,
oh, look, $8000 of gain. We're going to report that on
the 1099 DA to the government. Great, Robin Hood is going to
say, because based on IRS codes of receiving crypto is income.
So Coinbase is going to say, oh look, $10,000 worth of income.
(21:54):
I'm going to send a 1099-DA to the government now, the
government says. Hey, you got to.
Report $8000 of short term gain taxed at 28 to 37% and $10,000
worth of income on a non taxableevent.
But if you call the IRS and you say, hey, no listen, this isn't
right. This was a self transfer.
(22:16):
They said, well, you got to talkto Coinbase and you got to talk
to Robin Hood. Have you ever tried contacting
Coinbase? So that is why I'm happy that
President Trump in April was able to stop the 1099 DA's
because could you imagine a the billions of 1099 DA's that would
have that would go out every single year and how most of them
(22:39):
would be incorrect? And how do you fight that?
You can't, how are you going to fight that?
You know what I mean? You can't get a hold of
Coinbase. Now try to get a hold of
Coinbase when you when there's millions of incorrect 109098.
So you know, that's one of one of my like that I was happy that
(23:00):
that wasn't happening. Now, now the IRS comes back and
tells all the exchanges to trackthe basis of crypto, which let
me tell you, this is one of the issues I'm having with that.
So there's exchanges out there who will calculate your taxes
for you, right? So for the exchange
specifically, not for all your other other platforms to use,
(23:21):
but for the exchange specifically.
And I tested them. I created a little test.
I've created test wallets and exchanges everywhere.
And so I tested on one and it's one of the most used exchanges,
I think. And they also endorse 2 of the
top multi billion dollar crypto tax products on the market.
(23:42):
They not just endorse them, theyown parts of them, they're
shareholders in them. OK.
So they endorse them and their shareholders.
So you know, kickbacks, revenue,whatever.
But my assumption would be, and that would be, you know, an
assumption that anybody should have is if you're an exchange
(24:02):
and you endorse 2 of the crypto tax products, whatever the tax
numbers are that you're giving me should match the products
that you have. You have.
Partial ownership in and you're endorsing me too, right?
I mean, it would be easy. 24 this is this is my real numbers
in 24 I looked at and you can test this all I mean literally,
(24:24):
you can verify it by using it yourself.
Go log in and do this. I looked and I said OK, the one
exchange told me you have $99.00of gains on our data.
Again, remember small transactions.
I said OK, great. So then I connected it to the
one product that they're endorsing that they're that they
own and that product told me on my little 6070 transactions, OK,
(24:48):
said you have gain of $2990.00. OK, that's a little bit
different, right, Considering it's, it's literally 70
transactions of buy, sell, buy, sell, trade, trade, buy, sell,
right. Then I go to the third to the
second product that they're endorsing and own I have part of
ownership in and get the same data out through API or two and
(25:13):
it tells me you have a loss of $351.
Where's the new? Building identified way back
when. Yeah.
You're still, you're seeing in like current terms even though
they. Yeah.
So yeah. Were those two of the companies
that you had gone to to show them your data?
Yeah, yeah. OK.
Yeah. So, well, let me let me
(25:35):
backtrack. So let me tell you why I decided
to develop my own product. And and you know, my business
partner says because I say I'm stubborn, right?
I'm petulant. I get like really like fine, if
you don't do it, I'll do it right.
But in 23 at the beginning of 20-3, about six months after we
(25:58):
tried to give them our data and had met with the IRS and the SEC
and everything. So in quarter 3 of 20, like the
end of quarter three, beginning of quarter 4.
So buddy, listen about four about about two years ago,
right, about two years ago now, I went ahead and I pulled the
virus, the reports again to see if if you know to track their
(26:20):
data. All but one of the products who
we who we send it to. I'd read, read receipts, try to
fix their own mess. I've just given it to them for
free, but they tried to do it themselves without telling their
users. So this is where the issue comes
in. They try to fix their own
(26:41):
algorithms. They didn't fix crap, right?
They didn't. They made it.
I mean, they didn't make it better or worse.
It's still wrong, period. But now imagine this, anybody
who used these products for 22 or 21 and 2020 and 2019,
whatever. Now if you sign on now that
(27:02):
report that you used back in 22 and in 21 and in 20, that report
doesn't match what you actually used on your tax return anymore.
And, and we scoured because we've been signed up for
newsletters for all of them. We've scoured it, we've looked
they didn't send anything out and how easy would have been to
say, hey, the IRS made some changes to the tax code.
We had to make some changes to our algorithms.
(27:24):
Please review what you know whatyou have so you can Nope.
So that's when that. Seems almost like there's a
liability there for you know. You want to hear liability,
Let's I'll, I'll give you, I'll give you more details on that.
So, so that's when I said, you know what, screw this.
I'm just going to do it myself because obviously everybody just
cares about a dollar. You know, they want to make
(27:44):
money. They don't care about the
damages. And we'll go over what the
damages are. And people need to wake up and
realize this, you know, they, they, you know, every time a
disaster happens, people always act like, Oh my God, I didn't
see this coming. Well, then yeah, you did just
pay attention. You know what I mean?
Like your kid like goes upside down, down, you know, from the
slide and snacks, the head open.It's like, Oh no, how'd that
(28:06):
happen? Kid went upside down, down the
slide. That's, you know, but but it's
easier to, you know, and even even even large media outlets
that have been working with us, you know, told us very
straightforward, this is going to be bad.
This is going to be ridiculouslybad for the public.
But hey, we're going to wait until people are actually going
to be damaged before we publish something.
(28:29):
Major news outlets, major ones, national ones are interested.
That's their response. We'll wait until people
actually, you know, in pain fromthe financial damage that
they're going to incur by from this.
That's another story, so. This.
Year when I came across that issue where you know the major
exchange and the two products that that are connected to them,
(28:54):
I said, you know what? My attorney sent out a very
detailed outline of the negligence and lack of due
diligence that they have done and the issues not threatening
like we wanted an open dialogue.Less than 36 hours, this
multibillion dollar massive exchange, the first time in
(29:15):
eight years, less than 36 hours after they received our letter,
change their terms of services for the first time in eight
years to exclude class actual lawsuits, make arbitration
mandatory and take away all their liability for their tax
calculations and any third partytax.
Calculate calculators that they're that they're endorsing.
(29:35):
That they're endorsing even I yeah, I don't even know if
that'll hold up right, but that's weird.
But. If you didn't, if you didn't
sign, well, if you didn't sign they, they would close your
countdown. Yeah, but that doesn't limit
their liability. They close your account down on
something like that. It's like when you look at all
the stuff that's happening with credit cards right there,
(29:58):
there's there seems like there'sa never ending cycle of class
action suits against predatory policies or incomplete or, you
know. You know, I mean, it's not going
to hold up, You know, it's, it's, it's, it's absolutely.
But but you see what I'm saying?It's, it's look, I'm, I'm who am
I? You know, I'm not a billionaire.
I'm not a millionaire, right? Like, but I'm trying to fix
(30:23):
something and I wasn't being mean about it.
But I've seen so many people like, OK, let's imagine this.
Let's imagine we have the middleclass we have, we have, you
know, I don't know John Doe overthere in 19 he, he, you know, 18
he bought some crypto, you know,and 19 it like went crazy.
(30:44):
And let's say he made $50,000, OK, and he sold it and he sold
it, you know, he held it for less than a year because crypto
really went crazy in that year. And he made $50,000 and he goes,
yes, so he has $50,000. Took his family on a vacation,
bought a new car, paid off some credit cards, right?
But he didn't record it because he didn't know how to.
(31:04):
Now, let's say the IRS comes nowand says, hey, you're on the
list. We're going to audit you now.
And hey, you didn't pay. Let's say he had, you know,
let's, let's be nice and let's say, OK, he had, he had, he had
28%, right? He had 28% on, on his $50,000
because he didn't have a high tax rate, right?
So he had, he had 28%, he had, he would have voted like
(31:27):
$14,000. But John Doe, you know, he has
two kids, he has a dog, he has acat that always gets sick
because, you know, hairballs and, and he is married, you
know, stay at home mom. And, and now he, he relies on
his, his refunds every year because that's how he, you know,
pays for his kids to go to karate or gets his car replaced,
(31:47):
you know, his tires replaced, whatever it is.
Or maybe they take a vacation. Like we all know it, right?
We all know the struggle. So now, now he gets a bill.
Now they say, OK, listen, it's been 6 years, let's say the
audit in this year, right, It's been 6 years since since you
since you made that 14, you know, since you owed US $14,000
and that's. The lower right right they
(32:08):
compounded. And they compounded at between 6
to 8% interest. Well, we'll wait then we have
the underpayment penalty, we have the accuracy related
penalty, the late payment penalty, we have all these
penalties. And then that $14,000 is going
to easily turn into what, 2835 thousand dollars?
Well, now he says, oh crap, whatam I going to do?
(32:30):
Well, we can put you on a payment plan because it's under
$50,000 that you owe us. We can put you on an easy
payment plan, pay us $500 a month, 200 three, $100 a month,
right? What John doesn't realize is the
interest is still going to compound on all of it, including
penalties. So you're making these payments?
We think the the financial aid crisis for college is bad
(32:53):
because they were compounding interest for 15 years as people
were paying for it and they end up owing five times what their
initial principle was. But that's.
Where you're going, that's what's going.
To happen. Well, well.
The thing is this Oh my God. They're going to, they're going
to file their taxes. They're going to file their
taxes. And Hughes thinks, oh, I'm not a
$5000 tax return. No, you don't.
It's not going to be added. You're not going to see it for
(33:14):
the next 5-6, seven years because it's going to be used to
lower, to lower what you owe them, what you owe them after
the compounding. I mean, now John could go and
get a loan because let me let's be clear, how many companies
will come out of the woodworks and offer quick loans to pay off
your IRS debt with like, you know, 34% interest rate?
(33:35):
It's not going to be any better,right?
Yeah. Oh my God.
And I'm just thinking about thatbecause you know, as I, I, you
know, struggle to create awareness about the ability to
invest in entrepreneurs in crowdfunding or Angel investing,
right? Talk about that.
And you know, we're talking partof what I do is compared to
(33:57):
crypto investing, right? Because crypto is more known,
there's more word of mouth on crypto than there is on
crowdfund investing. And you know, I have this, the
three ways they're different, the three ways they're alike.
And it's one of the ways that they're alike is that anybody
over the age of 18 can do it Andthere is no limit on like no
(34:20):
income issue now with Reg CF just like there never has been
with crypto. And and so you and part of the
reason why the SEC and all of their wisdom has established
this accredited status and. People.
From being able to invest like millionaires have for you know,
(34:42):
I. Mean it's a.
Protection. You know I.
Can see. I see.
Why? Because it is, yeah.
They don't think they're sophisticated enough.
That's a big old battle that's going on right now.
I don't. Think it's so much the
sophistication because I see it I work with a lot of people like
right it is it is yes, one side of sophisticated, but the other
side is too. Can you imagine if you're
experience, if inexperience is some of these people, they're
(35:05):
amazing talkers. They will come and sell you a
freaking self drying towel rightThat mean like they don't die
themselves and people will come and be so excited about it.
I've seen it, you know, and so, you know, I've seen people go
bankrupt because they invested in the wrong things.
And I always say if it quacks like a duck and it looks like a
duck and walks like a duck, it'sprobably a freaking duck, you
(35:26):
know, So doesn't exactly right, Right.
Exactly. Not to invest it, yeah, yeah,
that's a whole nother conversation.
But but yeah, my point is, is that they, the SEC and FINRA and
the US Treasury. Oh yeah.
Oh yeah. Oh yeah.
That, oh, crypto doesn't really matter.
(35:48):
We'll let everybody do it, but we want to inhibit.
We don't want to give any, we don't want to give any guidance
either. You know, if we come up and and
and try to fight you for it, butyou know, we're just gonna yeah,
no, I get it. I get it.
But that's. Created a a bigger hornet's nest
now. Oh yeah.
Because of it being an actual currency that's a, you know, a
(36:10):
taxable, these taxable events and you know, they, But people
are unsophisticated with understanding that they're not
out there trading dollars for EUR or doing anything like that
and playing the monetary policy which, you know, it requires
that they, everybody knows there's a level of
sophistication in that and it's a bigger barrier to entry to get
(36:31):
into it than it is in crowdfunding.
So you've got a whole lot of people that jumped on a
bandwagon that now have this potential huge amount of
financial risk on them that theythey had no.
Well, it's a waterfall effect too.
Like if you look at it right, ifyou look like, you know,
remember John, John is going to sit there and he's not going to
(36:53):
know how to deal with the IRS. He probably used TurboTax.
He probably is not, doesn't haveanybody to really help him,
right? And that's where we're going to
mirror the ERC credits, all these companies that came out of
the woodworks and said we're going to help you file your 941
amendment, we're going to help you get.
These. Hundreds of thousands of dollars
back. You just have to give us 25% of
(37:15):
it. They filed all of them.
You know how many? And they got all paid out
because it was the crisis, right?
Everybody needed money. The money was.
Supposed to get paid out withoutreally reviewing these. 940 ones
and now millions of people have to pay them back.
But these companies that took the 25%, they're long gone, long
(37:35):
gone and they fought filled themout inaccurately and they have
to pay it back 100%. Doesn't matter if those
companies took them 25% or not. And so this is the same thing
because listen to this, after weaudited those 14 software
products, we went ahead and audited 53 of the of the
so-called crypto expert, like tax experts, legal experts.
(38:01):
We audited all these law firms, these accounting firms, CPA
firms and we audited them by becoming their clients.
We said, here you go. We have, you know, at this point
maybe like 6-7 hundred transactions, I need to know
what it is. They charged us 3 grand, three
or more grand for that many transactions.
The fun part is this 8 They asked us for it in CSV file form
(38:25):
which immediately I was like doesn't work.
Or they ask us to connect to oneof those products which
immediately tells me it's not going to work.
Or they took it and then ran it through the one of those
products and gave it back to us in a nice pretty looking excel
sheet and charged me 3 grand butnothing accurate.
(38:45):
Nothing. So now we're back into the same,
in the same position. Now John needs to find somebody.
Somebody is going to come and say, hey, I'm going to charge
you 345 and then the more money you have, right, 6789 ten, $1000
and I'm going to defend you in front of the IRS.
OK, Let me tell you how that's going to go.
The IRS is going to come and saywe looked over everything.
(39:08):
You owe us $14,000 plus interest, penalties, etcetera.
Whoever is representing you is going to be like well, OK, no,
he doesn't. Well prove it.
Well, here's one of the productswhere we ran the reports through
and it's only says he owes 8000 or $5000.
They say that product is not audit, is not allowed in an
audit, just like QuickBooks is not allowed in an audit because
(39:30):
it can be manipulated. And now we get to the features
that I spoke to earlier. Even if these products were 100%
accurate, you would not be able to use them in an audit because
we talked about this a little bit before we came on using
blockchain for voter, voter, youknow, like can I think of the
word verification? Because what happens on the
(39:53):
blockchain says on the blockchain can't be changed.
So what do these products do? Because they did not actually
verify what data comes over via the API, they didn't classify it
correctly. They, they don't know what
they're doing with this raw data.
They're letting you handle the raw data, they're letting you at
(40:16):
the basis, but they're giving you the option to do edit a
transaction. And I'm not just saying editing
it like, you know, like saying it was actually a self transfer
instead of a receipt for income purposes.
No, no. Edit the date, the time, the
currency. Imagine it, you have a, you have
a Bitcoin trade that generated $50,000 of capital gains.
(40:38):
You can go on there in those products and edit it and say it
wasn't Bitcoin. I'm going to make this Ethereum.
And the spot price wasn't 100 grand, it was $30,000.
They can only do that. No, I mean, no, that's fraud,
right? But like technically, like if I
sell, it used to be that in order to get around paying for
(41:00):
your sales tax, your car tax on a car, when you bought a
secondhand car, you would do thepink sheet transfer at a dollar,
right? Right.
Yeah, yeah. Now you can't do that anymore
because the states want to collect their taxes on it.
You know, it's not so much fraud, it's just they're going
to this, it's like QuickBooks, right?
So if you use QuickBooks for your bookkeeping needs, you do
(41:23):
adjust the general entries, entries that don't didn't show
up on your tax return because you have depreciation, right?
And depreciation obviously doesn't show up on your bank
statements, right? Or maybe you paid somebody out
of cash, You know, you make adjusted Germany.
But again, it can be manipulated, which is why you
cannot use it in an audit. They want your bank statements.
(41:45):
So what the IRS will want is theactual, you know, blockchain
data and not a product that allows you to change.
Imagine going to your bank and saying, you know, I wrote this
$10,000 check, but I think let'sremove a couple of zeros and
instead of dollars, let's make it yen.
(42:06):
How would that work for you? But that's what these products
allow you to do. And that's just insane to me,
right? Because, and they have, but the
problem is they have to let you do it because they do not get
the data over accurately and thealgorithms in the back are not
set because they didn't do double checking.
They didn't create data on any of and all of the exchanges and
(42:30):
block chains that they're utilizing to see how it comes
over. We did.
That's why it's been a pain in the ass and that's why I hate it
every day that I decided to do this because I'm a perfectionist
and I don't like doing somethinghalf ass.
And so I have to consistently create more wallets and more
exchanges and run data through in order for my developers to
pull the raw data to see what comes over, which is how we
(42:51):
discovered that none of the products ever catch validator
accounts, pretend that they don't exist.
They can't do it. You know, none of these products
can follow the basis of an NFT unless you bought it.
There's so many things that theydon't know how to do because
they didn't put the effort in it.
And, and my biggest problem is these products are literally
(43:12):
worth 2 to $3 billion billions. They have taken money out of
people's pockets who thought they're going to do the right
thing by reporting. And they've either under
reported or severely over reported.
Either way, they either overpaidor they underpaid.
The problem with this is get this, let's say you overpaid.
(43:36):
Let's say you overpaid. The IRS will not waive the
three-year statute of limitation, which means let's
say they audit you for 2019 and they say, oh, look, you
actually. I just lost your sound.
Sorry for that little technical glitch, everybody Jan is going
(43:56):
to wrap up talking about this issue with tracking that
transactional part of this and then we're going to get into the
solution because we talked a lotabout problems.
So here's the the solution, but it's important understanding,
you know, crypto, you know, as you're buying and selling,
there's this little piece of thetransaction and sometimes a
(44:16):
portion of your of that benefit,if you will.
I mean, you took out bit mine immersions, right, They air they
take a tiny bit as their paymentalong the way and that gets lost
in the shuffle in regular reporting on of accounting.
That needs to be a big piece of that.
That was a part she was talking about.
So pick up on that you just. Have to be able to, you know,
(44:38):
everything has to be caught because there's a big picture,
right? And if you only look at half of
the picture, it could be more beneficial or less beneficial.
And what I was saying is, you know, like these products are,
so they vary so much that on onehand you can be over reporting,
on the other hand you can be under reporting.
Now let me give you the issue. If you're over it for the audit
(44:59):
purposes of under reporting, there's no statute of
limitation. They can audit you for the next
1015 years if they want it. Now let's go to the issue of
you. Let's say you use the product
for example, that said you had $29190.00 of gains when you
didn't and you reported that andyou overpaid now and they audit
you and they say, oh actually you overpaid.
But guess what? You're past the three-year
(45:19):
statute of limitation. You're not getting a refund.
The IRS will still get their money if you're underpaid, but
you're getting your money back if you overpaid.
So, you know, talk about fairness.
But yeah. And so, so I was getting so
frustrated with a, what the consequences are going to be for
individuals, businesses, you know, for for, you know, look at
(45:44):
all the accounting firms. None of the Cpas will be able to
truly defend their client because they're not going to be
able to use anything that's out there.
Now that's, you know, again, like I said, stubborn, you know,
a little bit of control freak sometimes I was like, I'm going
to build my own, I'm going to doit right.
And so we've built this and, andagain, we're the only program
(46:04):
that's probably peer reviewed bythe by universities has been
published in tax notes as met with the IRS, stop the IRS
audits. And we have put it together in a
way that a individuals will willbe able to utilize it for their,
you know, trading needs and businesses will be able to use
(46:25):
it because in business land, it's the same way you receive
crypto. You have it, it's you, it's
income. If you hold it and you don't
sell it and then, or if you holdit and then sell it, you've got
to have capital gains on the business side as well.
It's the same treatment. However, the benefit you have is
now you get to write up expenses.
So if you pay people in crypto, if you pay individuals in
(46:45):
crypto, whether it's influencers?
Or. Contractors, whatever that's an
expense. So now you get to actually
expensive, right. So you, we've built out a crypto
bookkeeping system for you and we have an accountant financial
advisor platform, meaning financial advisors.
They can oversee your portfolio accountants, they can actually
see and, and review your tax reports or they can help you
(47:06):
with the bookkeeping portion of it, whatever it is.
But they have access to it and you build it out in a way we
have, we are lacking the features that will disqualify
the product for an audit. So plus also I think I think
they know me by now, they might be a little bit annoyed with me,
which is fine. But you know, I have no problem
(47:27):
because we have also added on audit defense for a fraction of
the cost that you will find out there.
We will work with your CPA if you have a full blown audit
because people only handle your crypto audit, right.
If you have a full blown audit and they question your crypto,
you call us in or if you're justsimply being audited for crypto,
we can handle it all. We have tax attorneys, we have
(47:48):
Cpas, we have EA's. We can represent you in front of
the IRS and trust me, I'll have a lot of fun with it because I
will be able to what do we what,what did we learn in math class,
right? Show your work.
I can be able to show my work. I can sit there and if I can, I
can calculate it manually. I can justify why I'm right and
why they're wrong, you know, so.And that is defy tax.com,
(48:10):
everybody DEFI tax.com right? Does that the best way to reach
you dot USDOT US. Well, thank you for correcting
me on that. Let's get that in the right in
the show notes. Defy tax.usisthereadefytax.com.
Yeah, I don't it, it's, it doesn't do anything.
I think it's just like a dead website.
(48:33):
Yeah, to you, Yeah, you have to eventually figure out not get so
famous that they won't sell thatto you.
Yeah, right, right. I like I do caravan dot CEO
because like people have to go. I'm sorry.
Go ahead. Until people start listening,
you know, I, it's just like I can, I can stand up on the wall
and talk to it, you know, and people will listen.
(48:53):
I mean, once, once once they're,you know, they, they're hurt by
whatever is happening, then they'll listen.
Let's come take a while. Yeah, because they don't look
because they're not getting audited now like you said, they
froze it. So they're not they it's a non
issue. They don't know anything about
it. And you know, if it was
something, let's just say my daughter had bought some crypto.
(49:16):
She does the basic online TurboTax, you know, the cheapest
little thing that they can do because she's one of those that
doesn't mate, doesn't do a lot of itemize.
So she goes for the simple and you know, that's probably even
worse for for, you know, the some a lot of the crypto traders
on that stuff. So this is very good.
(49:39):
So if that is so, if you are a business that is taking payments
through crypto or any kind of compensation through crypto, or
if you are buying and selling crypto, then it is in your
interest to go to D5 tax dot US to at least start to better
(50:00):
understand what your risks are, where you are, what you got to
do to circle the wagons to make sure when the IRS turns this
back on, you're in a good position.
Because you know that there, youknow, I, I right now you just
have given me a fear that everything that we are
experiencing and the, the anchorthat it is putting on our
(50:23):
economy's ability to grow is this college debt that's hanging
around so many people's necks that, you know, the IRS stuff.
Yeah, that's going to be a big issue, harder than the college
debt. You know, yeah, because then you
just, you get bad credit, but you can still do other stuff.
(50:45):
The IRS will come in and garnishyour Inc your wages.
This is only considering the IRSthe federal now.
This also hits your state level and states are a lot more
aggressive if you owe taxes. Oh yeah, yeah, that was a thing.
I had to pay the capital gains on selling my mom's house, like
guesstimate on it even before because the state tax would
(51:09):
start calculating and even that 60 days or whatever, I would
have had a penalty. Yeah.
I mean, and they don't always talk to each other because I had
a situation, just a basic thing where I did not know because the
thing was different. And they did.
By the time they got the notice to me nine months later, I was
already incurring charges on that, even though they had not
(51:31):
sent me anything saying that I had whatever it was that it was
at the time that I needed to do and.
That's the penalties, right? It's the penalties that really
will hit you because it will double what you owe in taxes.
And, and then the compounded interest, especially if you're
looking at 3456 years, you know,it's, I mean, I've seen people
(51:52):
who literally have tripled what their tax liability was, you
know, at one point because of it.
And, and again, you know, like our higher, you know, upper
class, like, you know, 1% up there, you know, I don't know
how much that's going to hurt them, but a middle class that's
already strained, you know, it'salready hurting.
(52:14):
They're, they're going to be theones that are going to be in
trouble because they, you know, they made some money here and
there. And because it's also how are
they going to afford having somebody represent them, you
know? Yeah, OK, Wow.
So my head's buzzing, You know, all this stuff, I I'm glad I
(52:34):
don't have this additional risk or concern in the way I made my
investments. But it is something that a lot
of people out there, like almostnearly as many people that have
invested in the stock market have invested in crypto.
So even whether it's a small amount or a big amount and you
know, it's with all the Wheelingand dealing and promoting of
(52:58):
crypto and NFTS are going right now where it's like the wild,
Wild West, who knows what could be the thing you you could
hopefully you got a very scalable solution because I have
a feeling that you're going to be people are going to be
banging on your door when the not so distant future in order
(53:19):
to try to, you know, stay out ofIRS jail.
So maybe not jail jail, but. Financially, for sure.
Yeah, I hear what you're saying.It's yeah.
And I mean, listen, the IRS partnered with chain analysis so
it makes it easier for them to trace all.
Your assets too. Yes, yes, there was a somebody
(53:44):
was just talking about how you call the IRS and you can't get
through right. There is no.
And I was like, I have, I have the.
Professional hotline so I can get through but yes I know it.
Yeah. Well, it's like, you know, when
they think it's, you know, they they cut it in the not even this
current budget, they were supposed to higher up however
(54:04):
many hundreds of agents because they've attritioned out and just
to keep up with the normal thing.
And it was one particular party doesn't did thought that you
know, IRS is bad and therefore we shouldn't have any IRS agents
to help our taxpayers be able tonavigate this.
And so it's even worse than it was the.
(54:24):
IRS needs to stop hugging everybody so nobody has to call
and figure out what the heck they're sending you.
Yeah. I mean, listen, you know, I've,
I've heard it's like, well, maybe they'll get rid of the
IRS. And I was.
Like I, I tell everybody, I said, listen, as much as I don't
like taxes or paying taxes, I like taxes, right?
But paying taxes as much as I don't like paying taxes.
(54:47):
What do you think? Pays for our military and I
really would like to keep our military, right.
Like what do you think pays for all, like, you know, roads on
federal lands and things like that?
Who do you think it's going to pay, You know, pays for?
I mean, we kind of need to pay taxes in order to, you know,
keep certain things going because how many countries would
be happy if we all of a sudden said here military, we don't
(55:08):
have money for you, you all, youknow, free go, go.
Do you think what's going to happen?
You know, so I the IRS is not going to go away.
It's not going to go away period.
I mean, I'm all about paying theright amount of taxes.
You know, it's not overpaying it, but the IRS is not going to
go away and we can't have it go away.
It's, it's, I mean, listen, if we could cut all the freaking,
(55:31):
you know, congressional and likeall of those salaries, all of
those pays, we would already have a lot more money.
Yeah, just an idea, yeah. There's a whole lot of that
boondoggling going on, paying $1,000,000 for a plane that will
never be used by an American president.
Or the lobbyists, you know, stuff like all of that.
(55:52):
I mean, listen, we would, you know, we would have a lot.
Billion dollars. Billion dollars, yeah, Yeah.
So with that defy tax, if you'rea crypto investor, make sure
that you are you got your ducks ducks in a row, because if it
cracked like a duck, it walks like a duck.
It might be a duck and you can get ducked out over your IRS
(56:18):
liabilities if you're not if you're not smart about it, haha,
that was clever. OK, so all right, Janet, thank
you so much for being a guest onthe Compassionate capitalist
show. It was enlightening for me and
I'm certain for the folks that have listened through go to D5
tax dot US and for everything about me, Karen rands.co or
(56:42):
Cougar rand.com, which is on if you're watching right now and
you can get access to the ebooksas well as a just Google Karen
Rands anywhere you can find me pretty much.
So with that, everybody onwards and upwards to have a great day.
Awesome. Thank you so much.
Bye bye. Thank you for listening to this
(57:02):
podcast, The Compassionate Capitalist Show, brought to you
by Cougar and Capital Holdings with Carrot Brands as host.
You are encouraged to visit the website kugarand.com to learn
more about how Karen and her team help investors and Angel
groups make money by avoiding investing in deals that suck.
(57:25):
And how the Kugarand Capital companies and partners help
entrepreneurs breakthrough theirbarriers to capital and live
their dream by building companies that can scale and
create generational wealth for their founders and investors.
If your business could benefit from exposure to our audience of
business executives, entrepreneurs, and investors, we
(57:46):
are seeking financial partners and sponsors for the
Compassionate Capitalist Show tohelp us take this podcast beyond
our 150,000 listeners and amplify the message of the
Compassionate capitalist movement by making this a Top 50
business podcast. The Capacity Capitalist Show is
available on YouTube, Apple Podcasts, iTunes, TuneIn,
(58:07):
Stitchers, Spotify, Pandora, andGoogle Podcast.
Contact us at karenrance.co to learn more.
And as a listener, you can do your part of the Compassionate
Capitalist movement by subscribing wherever you listen
to podcasts and sharing this show with your friends and
colleagues. Be sure to pick up your copy of
(58:28):
Karen's bestseller that launchedthe Compassionate Capitalist
movement. Inside secrets to Angel
investing. A step by step strategies to
leverage private equity investment for passive wealth
creation. Thank you for listening.
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