Crypto Tax Secrets From an IRS Agent Who Audited 14 Platforms

Tedd Huff: 00:00:00

Janet discovered something that should really

Tedd Huff: 00:00:03

terrify every crypto investor.

janna scott: 00:00:06

If you get audited, who do you go to?

Tedd Huff: 00:00:08

The industry is built on a fundamentally flawed foundation

janna scott: 00:00:11

because if the IRS says, this is what you owe us.

janna scott: 00:00:14

It is on you to prove that they are wrong.

Tedd Huff: 00:00:16

The existing solutions just aren't cutting it

janna scott: 00:00:18

well, that's a big issue, a very big issue.

janna scott: 00:00:20

So I built something that very much focuses on educating the clients.

Tedd Huff: 00:00:24

A lot of people don't realize the level of data that is on chain.

janna scott: 00:00:29

Have you ever tried calling Coinbase, your

janna scott: 00:00:31

side calling Kraken, good luck.

janna scott: 00:00:32

Well, actually, it's easier to get ahold of the IRS than it is to Coinbase.

janna scott: 00:00:37

No, you can manipulate data.

janna scott: 00:00:39

I can make it look like I made $15 million last year.

Tedd Huff: 00:00:42

They're allowing people to create their own realities.

janna scott: 00:00:44

Don't do it.

janna scott: 00:00:45

They have a program, they run it through.

janna scott: 00:00:46

They tell them if it was manipulated, don't do it.

janna scott: 00:00:48

And again, I didn't do this to make money.

janna scott: 00:00:50

I tried to give this away for free multiple times.

janna scott: 00:00:52

People didn't care.

janna scott: 00:00:52

One differentiating factor can cost you 50 to hundred thousand

janna scott: 00:00:56

dollars in additional capital gain.

Tedd Huff: 00:00:58

And after listening to this has decided, I'm panicking, what's

Tedd Huff: 00:01:01

the right thing that they should do?

Tedd Huff: 00:01:03

Right away

janna scott: 00:01:04

my gut feeling is.

Tedd Huff: 00:01:07

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Tedd Huff: 00:02:37

Welcome to Web3 with FTC by FinTech Confidential.

Tedd Huff: 00:02:41

If you've been asking how blockchain, crypto ai, or even quantum

Tedd Huff: 00:02:45

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Tedd Huff: 00:02:49

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Tedd Huff: 00:02:53

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Tedd Huff: 00:03:00

This is where Real Talk meets real tech.

Tedd Huff: 00:03:03

I'm your host head of, and today's guest is Jana Scott,

Tedd Huff: 00:03:07

founder and CEO at Defi Tax.

Tedd Huff: 00:03:10

So let's go ahead and get started.

Tedd Huff: 00:03:13

Jana, welcome to Web3 with FTC.

Tedd Huff: 00:03:15

I am genuinely excited to have you here today.

janna scott: 00:03:19

Well, thank you for having me.

janna scott: 00:03:20

I'm excited as well.

Tedd Huff: 00:03:21

So for those of you who don't know Janna, she brings a

Tedd Huff: 00:03:25

perspective to crypto taxation that.

Tedd Huff: 00:03:29

Literally, I've heard no one else in the industry talk about with her background

Tedd Huff: 00:03:33

as an IRS enrolled agent and experience working with the federal government

Tedd Huff: 00:03:38

agencies, including the IRS itself, Janet discovered something that should

Tedd Huff: 00:03:44

really terrify every crypto investor, the entire cryptos tax software.

Tedd Huff: 00:03:49

The industry is built on a fundamentally flawed foundation, and she found this out

Tedd Huff: 00:03:54

after conducting forensic level audits of over 14 of the major platforms and

Tedd Huff: 00:04:01

53 of the so-called tax expert firms.

Tedd Huff: 00:04:05

She uncovered variances that ranged anywhere from 35% or even

Tedd Huff: 00:04:10

higher between these platforms on identical transaction data.

Tedd Huff: 00:04:15

Not only that, but she, her peer reviewed research now published

Tedd Huff: 00:04:19

in tax notes, actually stopped IRS crypto audits a for a couple years,

Tedd Huff: 00:04:25

over a couple years, and because.

Tedd Huff: 00:04:28

She could prove that their methodologies were creating chaos.

Tedd Huff: 00:04:33

Defi Tax isn't just another tax platform really.

Tedd Huff: 00:04:38

It was really cool to listen to, to Jana talk about like, this is really

Tedd Huff: 00:04:42

the first audit ready solution built through direct collaboration with the

Tedd Huff: 00:04:47

IRS, the SEC and others, and it's designed to eliminate the data manipulation

Tedd Huff: 00:04:53

vulnerabilities that make every other platform inadmissible in actual audits.

Tedd Huff: 00:05:01

So Jenna, you know, I've been honest with you, I've been honest with the

Tedd Huff: 00:05:04

audience for, I've been in this since 2012 and have had some absolute nightmares

Tedd Huff: 00:05:10

when it comes to tax preparation and involve my involvement in crypto.

Tedd Huff: 00:05:16

When you and I sat down earlier and talked about it, honestly it was, it was the

Tedd Huff: 00:05:19

first time that I talked to someone in the CRI crypto tax space where I didn't

Tedd Huff: 00:05:25

feel like I needed to be an expert in taxation and crypto at the same time

Tedd Huff: 00:05:33

to really understand what was going on.

Tedd Huff: 00:05:35

Which brings me to what I want to dig into first, Janet, most entrepreneurs

Tedd Huff: 00:05:43

have this moment where they realize that they need to build something because the

Tedd Huff: 00:05:48

existing solutions just aren't cutting it.

Tedd Huff: 00:05:50

But your story, it's a little bit different.

Tedd Huff: 00:05:53

So you literally had inside knowledge of, of how the IRS was working and

Tedd Huff: 00:05:57

around all these different things.

Tedd Huff: 00:05:59

Do me a favor.

Tedd Huff: 00:06:00

Take me back to the beginning.

Tedd Huff: 00:06:02

What was your path into the tax world and what was the moment you realized

Tedd Huff: 00:06:06

that crypto tax and the industry had a massive systematic problem?

janna scott: 00:06:13

Yeah, it's been a wild ride.

janna scott: 00:06:14

Not my journey into tax and accounting.

janna scott: 00:06:17

That's numbers just always made sense to me my whole life.

janna scott: 00:06:20

So when I went into accounting about 16, 17 years ago, it was a natural

janna scott: 00:06:25

progression just because looking at financial statements, looking at

janna scott: 00:06:29

tax returns, it just came naturally to me, the research behind it.

janna scott: 00:06:33

And as you mentioned, I, while I worked in public accounting for private

janna scott: 00:06:36

companies, eventually I worked my way up through working for the government

janna scott: 00:06:40

as a tax specialist specialist, financial analyst, and then financial

janna scott: 00:06:44

consultant with, with various agencies.

janna scott: 00:06:47

In 21, I decided the government just doesn't, for me,

janna scott: 00:06:50

multiple, various reasons.

janna scott: 00:06:51

It wasn't, uh, I call it the dark and the light side.

janna scott: 00:06:54

So I went back to the light side and, and I went and I, I started my own

janna scott: 00:06:58

accounting firm and tax firm, financial advisory firm after working for multiple

janna scott: 00:07:03

firms within, throughout the country and finding that there was a lot of lab

janna scott: 00:07:08

of advice or care about their clients.

janna scott: 00:07:12

And so I built something that very much focuses on educating the clients.

janna scott: 00:07:17

I don't just tell them, you believe me, A, B, C, this is what you have to do.

janna scott: 00:07:20

I explain to them, I show them the codes.

janna scott: 00:07:21

I wanna educate them.

janna scott: 00:07:22

I want them to understand their finances better than I do.

janna scott: 00:07:27

And during that time, I had a client approach me, end of 21, beginning

janna scott: 00:07:32

of 22, said, I have a lot of crypto.

janna scott: 00:07:34

How do I report it?

janna scott: 00:07:36

I had crypto as well, and for some odd reason, I've never crossed my mind.

janna scott: 00:07:41

So I was like, whoops.

janna scott: 00:07:42

And that's when I went down the rabbit hole.

janna scott: 00:07:44

I had this little ex, this exchange with.

janna scott: 00:07:47

I had about 300 transactions between 17 and 21 at that point, and I signed

janna scott: 00:07:52

up for all the products I could find.

janna scott: 00:07:54

Yay, Google.

janna scott: 00:07:55

And I signed up.

janna scott: 00:07:56

I ran my little, little tiny exchange through it and I was, I

janna scott: 00:08:00

don't know what I was expecting.

janna scott: 00:08:02

I just wanted to see what the outcomes were.

janna scott: 00:08:04

I think I sat in front of my computer after the first couple,

janna scott: 00:08:07

first three, and I said, what?

janna scott: 00:08:10

He goes, one plus one is two.

janna scott: 00:08:12

I didn't get one.

janna scott: 00:08:13

Plus one is two.

janna scott: 00:08:13

I get one plus one is 592, and one plus one is 375, and

janna scott: 00:08:19

one plus one is negative 260.

janna scott: 00:08:22

I did not get any clean outcome for any of the years, and if you consider that

janna scott: 00:08:26

each year maybe had 40, 50 transactions that are very straightforward, buy,

janna scott: 00:08:31

sell and trades, nothing crazy, no NFTs, nothing too complicated.

janna scott: 00:08:36

It was very concerning that all these products that at that time were already

janna scott: 00:08:39

valued, that a few billion dollars did not get the algorithms right.

janna scott: 00:08:44

So.

janna scott: 00:08:45

That's how I got started.

janna scott: 00:08:46

And listen, I did not plan on building anything.

janna scott: 00:08:50

I just got my OCD, got a little bit ahead of me and, and for a year I

janna scott: 00:08:55

went down the rabbit hole of figuring out what these products are doing

janna scott: 00:09:00

wrong and how to do it right based on my knowledge of the IRS codes

janna scott: 00:09:06

based on my knowledge of publications regarding crypto and just the basics.

janna scott: 00:09:11

So that is kind of how I got into it.

Tedd Huff: 00:09:15

What was it like working inside government agencies and

Tedd Huff: 00:09:20

watching this industry from the inside?

janna scott: 00:09:22

For me, my issue with government agencies, and this is, this

janna scott: 00:09:26

is a meat problem because that's just who I am, it is too compartmentalized.

janna scott: 00:09:31

I like to know why things happen and how things fit together.

janna scott: 00:09:37

You know, I would be the kid that takes the toaster of hard to

janna scott: 00:09:40

figure out how it works, doesn't mean I could put it back together.

janna scott: 00:09:43

But working for the government agencies, the biggest issues were that they

janna scott: 00:09:47

didn't talk with one another, a the agencies, but not even agency to agency.

janna scott: 00:09:53

But the agencies internally didn't communicate with one another

janna scott: 00:09:56

departments and internally didn't communicate with one another.

janna scott: 00:10:00

Um, when I was a tax specialist, one of the issues I came across is they were

janna scott: 00:10:05

different divisions within my unit.

janna scott: 00:10:07

Everybody had had a different job.

janna scott: 00:10:09

I was tasked with one portion of fixing an issue for the taxpayer, but I couldn't

janna scott: 00:10:16

because I had to wait on other divisions.

janna scott: 00:10:18

So I went ahead and I, that was still where we were in office.

janna scott: 00:10:21

I walked around to all the divisions and I learned everybody else's job to

janna scott: 00:10:25

understand how to fix the problem without waiting 6, 7, 8, 10 weeks for a solution.

janna scott: 00:10:30

And I actually got in trouble.

janna scott: 00:10:32

I got called to the director's office and I was told.

janna scott: 00:10:36

No, because my, you give metrics and I finished my, all of my metrics.

janna scott: 00:10:40

You had a quarter to finish your metrics.

janna scott: 00:10:41

I did it all within four or five weeks.

janna scott: 00:10:44

And they asked, how did you cheat?

janna scott: 00:10:45

I'm like, I did it.

janna scott: 00:10:46

Here's the SOPs I wrote up that actually helped finish the products

janna scott: 00:10:51

and re resolve the issues the taxpayers have within near minutes.

janna scott: 00:10:56

Obviously that wasn't shared with anybody else in the units in order to, to do

janna scott: 00:11:00

this, but yeah, I had to, you know, I had to justify why I was doing a good job,

janna scott: 00:11:04

so I moved on, you know, and, and that was the same thing in every department.

janna scott: 00:11:07

Very compartmentalized.

janna scott: 00:11:09

Don't talk to one another.

janna scott: 00:11:10

The IRS is the same way.

janna scott: 00:11:12

The 10 40 division doesn't talk to the 10 65 division.

janna scott: 00:11:15

The 10 40 division regarding donations doesn't talk to the 10 40 division that

janna scott: 00:11:20

handles w twos, which it should be.

janna scott: 00:11:22

That should be communications.

janna scott: 00:11:23

And so that, that was one of my biggest issues, that it is a lot of hurry up

janna scott: 00:11:27

and wait and, and, and I do hurry up.

janna scott: 00:11:31

And I don't wait, which is why, why the real world works a little

janna scott: 00:11:35

bit better for me when it comes to putting things into motion.

Tedd Huff: 00:11:38

So one of the things that you and I talked about in our last

Tedd Huff: 00:11:41

conversation is one of the major realizations that there's a big

Tedd Huff: 00:11:47

problem was back in 2021 when the thousands of John Doe letters went out.

Tedd Huff: 00:11:57

Like, help us understand what that realization was like for

Tedd Huff: 00:12:01

you when you're like, holy crap,

janna scott: 00:12:03

yeah,

janna scott: 00:12:04

you're

Tedd Huff: 00:12:04

just sending these out.

Tedd Huff: 00:12:05

Just send them out.

janna scott: 00:12:06

So I didn't come really across from that because I didn't look

janna scott: 00:12:08

much into it until beginning of 22.

janna scott: 00:12:10

But in 21, the Justice Department basically put out,

janna scott: 00:12:14

and it's easy to find online.

janna scott: 00:12:16

They allow the IRS to send out a thousand John Doe summonses to

janna scott: 00:12:19

any exchange and product that uses KYC, which means Coinbase, Kraken,

janna scott: 00:12:23

Robinhood, et cetera, et cetera.

janna scott: 00:12:25

But it also means on the decentralized wallet, such as meta mask, if you use

janna scott: 00:12:29

anything like moon pay, if you use anything other than peer-to-peer to

janna scott: 00:12:32

purchase crypto on anything decentralized, there's a key KYC component to it.

janna scott: 00:12:37

So all of those products receive letters from the IRS saying, Hey, give us the

janna scott: 00:12:42

info of the US taxpayers that have a KYC.

janna scott: 00:12:45

Now, they didn't tell them how much, they didn't tell them how

janna scott: 00:12:48

much they bought or when they last bought, or if they sold, they just

janna scott: 00:12:51

told them these people had crypto.

janna scott: 00:12:53

About two months ago, actually, the IRS received the third round of responses.

janna scott: 00:12:59

So since 21, they have received third three response responses, meaning,

janna scott: 00:13:03

you know, not, not, not meaning from one, yeah, from three exchanges.

janna scott: 00:13:07

It means they received a response because they send out three

janna scott: 00:13:10

waves, and so they received.

janna scott: 00:13:12

Updates.

janna scott: 00:13:13

You know, like, let's say they sent, and Coinbase did try to fight

janna scott: 00:13:15

it to their credit, Coinbase did try to fight those, but ultimately

janna scott: 00:13:19

everybody gave out the, the data.

janna scott: 00:13:21

So now the IRS knows who the US taxpayers are, who bought the

janna scott: 00:13:25

crypto, who, who held crypto.

janna scott: 00:13:27

Again, they don't know if you bought it, held it and never sold it.

janna scott: 00:13:29

They, they have no idea.

janna scott: 00:13:31

They just know you had it.

janna scott: 00:13:32

And now ultimately in their logic, they're gonna look at it and say,

janna scott: 00:13:37

okay, Jana Scott, you had, well, your income last year, I don't

janna scott: 00:13:41

know what's a million dollars.

janna scott: 00:13:42

I wish.

janna scott: 00:13:43

But let's just say you and the income was a million dollars on your tax return

janna scott: 00:13:46

and it says that you bought crypto.

janna scott: 00:13:48

Now, considering you have that much money, you have a lot

janna scott: 00:13:50

of money to put into crypto.

janna scott: 00:13:51

So I'm, we're gonna guess that we, we all should audit you first

janna scott: 00:13:55

because you probably have the most crypto and you might have the

janna scott: 00:13:57

most gains that you didn't report.

janna scott: 00:13:59

So let's audit you.

janna scott: 00:14:00

Doesn't, you know, I could have bought $200, I, you know, I could have had 200 of

janna scott: 00:14:04

gains, I could have had 200,000 of gains.

janna scott: 00:14:06

They don't know, but they're gonna audit me.

Disclaimer: 00:14:08

And that's the issue,

janna scott: 00:14:09

right?

janna scott: 00:14:10

That's an issue because.

janna scott: 00:14:12

You know, as you mentioned, I audited these products and we'll

janna scott: 00:14:15

go into why they're useless.

janna scott: 00:14:18

Even if their math would be right, they would be useless.

janna scott: 00:14:21

But we also went and audited 53, so-called CPA, tax accounting law firms that say

janna scott: 00:14:28

that they're crypto tax experts, and we paid them, we gave them our data.

janna scott: 00:14:32

And even that, those people could not come back with the right data.

janna scott: 00:14:36

And I'll, I, I can go into why as well.

janna scott: 00:14:39

Now the concern is if you get audited, who do you go to?

janna scott: 00:14:42

Because if the IRS says, this is what you owe us, it is you on

janna scott: 00:14:47

you to prove that they are wrong.

janna scott: 00:14:49

It is not on them to prove that they're right.

janna scott: 00:14:51

You have to prove them wrong.

janna scott: 00:14:53

Now, how do you do this when nobody can justify?

janna scott: 00:14:57

You can, you can just come up with a number, but they're gonna

janna scott: 00:15:00

say, look, we did the math.

janna scott: 00:15:01

This is the number.

janna scott: 00:15:02

Tell us why we're wrong.

janna scott: 00:15:03

And that's one of the issues that we've come across in the, you know, in 22,

janna scott: 00:15:07

because audits were ongoing in 22, 23.

janna scott: 00:15:11

Until we met with them, John dollars are still gonna be used.

janna scott: 00:15:15

They're not gonna expire and they're gonna keep getting data.

janna scott: 00:15:18

People who've touched any of the K YC exchanges, and it doesn't matter if you

janna scott: 00:15:21

transferred it to your cold wallet or ledger or the peer to peer, whatever

janna scott: 00:15:26

you did, if there's any footprint on KYC exchange, the IRS is going to know.

janna scott: 00:15:31

And I a love hate relationship with chain analysis.

janna scott: 00:15:35

I think what they've built is amazing and they're amazing at tracing, but

janna scott: 00:15:40

they're also helping the IRS sees assets.

janna scott: 00:15:41

So that's my love hate relationship right there.

Tedd Huff: 00:15:43

So it was interesting as you, you talked about your relationship walking

Tedd Huff: 00:15:49

around the buildings and, and talking to different departments and I mean, that

Tedd Huff: 00:15:54

unique vantage point not only gave you an understanding of, of how the system works,

Tedd Huff: 00:16:00

but how the data moves around everything.

Tedd Huff: 00:16:03

But you know, you also started looking at, like you mentioned, the.

Tedd Huff: 00:16:07

Tax platforms and the crypto experts that everybody uses for the most part.

Tedd Huff: 00:16:15

Mm-hmm.

Tedd Huff: 00:16:16

Uh, I want you to, to dive in a little bit deeper, and let's start with

Tedd Huff: 00:16:20

the forensics piece of it, right?

Tedd Huff: 00:16:21

So when you audited these 14 crypto tax platforms and the 50 plus law firms

Tedd Huff: 00:16:29

that, that provide, and auditing firms that provide this functionality, help

Tedd Huff: 00:16:34

us understand like what the methodology was and what did you find that made

Tedd Huff: 00:16:41

you realize that all of these systems and providers really are built on.

Tedd Huff: 00:16:50

Quick, Sam.

janna scott: 00:16:51

I mean, initially, listen, I remember being at a loss.

janna scott: 00:16:54

I remember sitting in front of my computer until three in the morning or

janna scott: 00:16:58

waking up at two in the morning going, Ooh, this is something I could try.

janna scott: 00:17:01

I mean, it was exhausting because I did not really know where to start either.

janna scott: 00:17:05

So my, you know, I began with taking my little testing, you

janna scott: 00:17:08

know, exchange and doing so every, every product did it differently.

janna scott: 00:17:12

Most of them used API or to someone wanted CSV files to be uploaded,

janna scott: 00:17:17

which then I actually found out CSV files are completely useless because

janna scott: 00:17:21

they're missing a lot of data.

janna scott: 00:17:24

So those, those I could already dismiss because I just, from the CSV

janna scott: 00:17:29

file alone, I, I knew, I knew my set of data, I knew what I've done, and

janna scott: 00:17:32

I saw a lot of missing components.

janna scott: 00:17:34

So what I did, I took all these, the ones that were feasible because they actually

janna scott: 00:17:39

did the import from the blockchain and I downloaded their CSV files because they

janna scott: 00:17:43

allow you to pull their data in CSV files.

janna scott: 00:17:46

So I did, and I went through line my line.

janna scott: 00:17:49

Then I said, well, I need to find the, I need to make sure that

janna scott: 00:17:52

they even have the right data.

janna scott: 00:17:53

So I went into, into, uh, I went to build an API to form my own data, raw data from

janna scott: 00:18:00

the blockchain unfiltered by any program.

janna scott: 00:18:03

So I went and got my own raw data and I sat in front of it and I was like,

janna scott: 00:18:07

oh my God, there's so much on it.

janna scott: 00:18:09

So I needed to figure out how to organize it correctly.

janna scott: 00:18:12

Right.

Tedd Huff: 00:18:12

It's so funny you say that because a lot of people don't realize the

Tedd Huff: 00:18:16

level of data that is on chain, the fact

janna scott: 00:18:20

that it's, oh, it's like 20 different columns and then,

janna scott: 00:18:23

you know, hundreds of rows and some of the columns you don't even need.

janna scott: 00:18:27

Completely useless for the tax calculations.

janna scott: 00:18:29

And so that's, that was my first step.

janna scott: 00:18:31

I had to figure out what was essential for me to know for my tax calculations, and

janna scott: 00:18:37

by doing a trial and error on my end, and knowing how the IRS handles stocks, how

janna scott: 00:18:43

the IRS handles any type of other assets.

janna scott: 00:18:46

Asset sales or income assets.

janna scott: 00:18:48

It's, that's kind of how I went about it.

janna scott: 00:18:50

And doesn't mean I got it right, right away.

janna scott: 00:18:52

Trust me, I have way too many spreadsheets and I organized it and I figured out

janna scott: 00:18:57

how to organize it, and I figured out what, even on the blockchain were missing

janna scott: 00:19:01

components that the other programs missed as well, which is if you trade in

janna scott: 00:19:07

and you trade out, you should have two rows and not just one because something

janna scott: 00:19:12

left your wallet and now, or exchange and now ca and something else came in

janna scott: 00:19:16

instead of having it in one column and just, just not properly accounting for

janna scott: 00:19:21

it or accounting for it on the back end without actually seeing the data.

janna scott: 00:19:25

So I organized a lot and then I went ahead and I, I gave it a try with my

janna scott: 00:19:30

own calculations and trust me, even just having 300 transactions, it was not fun.

janna scott: 00:19:36

No, I can do it in my sleep, but back then it wasn't fun.

janna scott: 00:19:38

So it took me a couple months to actually figure out how to do it right.

janna scott: 00:19:42

I used their products and the CSV files and I compared, and I

janna scott: 00:19:46

checked, okay, why do they have this number for this taxable event?

janna scott: 00:19:49

Why do I have this?

janna scott: 00:19:51

And I went into it.

janna scott: 00:19:52

I always went into it that I'm long and they right, because quite frankly,

janna scott: 00:19:57

who was I, you know, I don't know much about blockchain technology or you

janna scott: 00:20:01

know, I know how to freight crypto.

janna scott: 00:20:02

I know what, what happens.

janna scott: 00:20:04

I know a smart contract, I understand all that, but they're

janna scott: 00:20:07

billion dollar companies.

janna scott: 00:20:08

So I have other resources.

janna scott: 00:20:09

So why, you know, I went into it saying, why would I be right?

janna scott: 00:20:12

Why, you know, I'm assuming I'm wrong and they're right.

janna scott: 00:20:14

And then I tried to prove my point and you know, I'm just like research.

janna scott: 00:20:19

And I figured out why I was right and why they were wrong.

janna scott: 00:20:21

And granted, listen, not every single calculations for every single

janna scott: 00:20:24

taxable event, they were wrong.

janna scott: 00:20:26

The majority was wrong, but not all of them.

janna scott: 00:20:29

So we had common denominators there.

janna scott: 00:20:31

So I just have to figure out why mine was different and, and I, I figured

janna scott: 00:20:34

out really quickly it's because they missed, they incorrectly categorized

janna scott: 00:20:38

transactions or because of the way they had the algorithm set in the back end.

janna scott: 00:20:43

It just didn't come over.

janna scott: 00:20:45

It was discarded.

Disclaimer: 00:20:46

Yeah.

janna scott: 00:20:47

Or they had too much data.

janna scott: 00:20:49

Data that was inconsequential because for example, Kraken, if you pull the API

janna scott: 00:20:56

report, it gives you a lot of something called auto allocate and it looks like it.

janna scott: 00:21:01

It is all it is.

janna scott: 00:21:02

It's for kraken staff and ledger and entry has nothing to

janna scott: 00:21:06

do with your tax calculation.

janna scott: 00:21:08

So those should be completely ignored, but you won't know that unless you

janna scott: 00:21:12

actually test a bit yourself to see what it was and you know what happened.

janna scott: 00:21:17

So that's what I did.

janna scott: 00:21:18

I went very deep into, and I probably have a little bit of crypto and every single

janna scott: 00:21:24

wallet and exchange that I could access as a US citizens because a lot of them are

janna scott: 00:21:28

restricted to US citizens at this point.

janna scott: 00:21:30

I probably have a little bit of crypto on all of them.

janna scott: 00:21:32

Now I have a team who helped me with that.

janna scott: 00:21:35

But we ran test transactions to everything and then pulled the API and then

janna scott: 00:21:38

compared it and make sure that the API actually pushed through the right data.

janna scott: 00:21:42

What do we have to add?

janna scott: 00:21:43

What do we have to subtract?

janna scott: 00:21:45

Why is this coming over and this way?

janna scott: 00:21:47

And then we build rules around it.

janna scott: 00:21:48

'cause every single a public or private blockchain gives up a

janna scott: 00:21:53

different set of data with different names for the type of transactions.

janna scott: 00:21:57

And that's what I think these products forgot to do.

janna scott: 00:22:00

Plus then they're wrong on some calculations.

janna scott: 00:22:02

And that's something we can go in deeper, but that might take a little longer.

Tedd Huff: 00:22:05

So before we dive into the calculation side of the house,

Tedd Huff: 00:22:08

because I do wanna ask that question, but you know, one of the things

Tedd Huff: 00:22:11

that you and I talked about also is that a lot of times if, if I move my

Tedd Huff: 00:22:16

asset from Coinbase to Kraken mm-hmm.

Tedd Huff: 00:22:20

A lot of times just 'cause I'm moving it from one wallet to

Tedd Huff: 00:22:24

another, that's sometimes viewed.

Tedd Huff: 00:22:27

As a taxable event.

Tedd Huff: 00:22:28

Help me understand that.

janna scott: 00:22:29

So, so yeah.

janna scott: 00:22:30

So on these tax platforms, right, the, if you connect both of those, they're

janna scott: 00:22:35

pretty good at matching it and making sure that it technically not a taxable event.

janna scott: 00:22:39

However, and this is actually in one of our press releases that we had at

janna scott: 00:22:43

the beginning of the year, right before President Trump went ahead and signed that

janna scott: 00:22:48

no, 10 99 das are supposed to be issued.

janna scott: 00:22:51

Which, I mean, I think it's gonna come back, but that is one of the issues.

janna scott: 00:22:55

So imagine your, your Coinbase and you're on Coinbase and you are, you

janna scott: 00:23:00

have, you know, you bought something for $2,000 and it's now worth 10,000.

janna scott: 00:23:04

And you say, Woohoo.

janna scott: 00:23:04

But I wanna send it to my Kraken because I have other things I would like to do

janna scott: 00:23:08

on Kraken that Coinbase doesn't do great.

janna scott: 00:23:10

However, how is Coinbase supposed to know that you send

janna scott: 00:23:15

it to your own personal Kraken?

janna scott: 00:23:16

Coinbase and Kraken, they'll communicate their competitors.

janna scott: 00:23:19

So Coinbase, if Coinbase now has to, has to generate your taxable events.

janna scott: 00:23:25

Or a 10 99 A, they're gonna say, Hey look, he bought it for 2000.

janna scott: 00:23:30

He, it left his wallet at 10,000, so he had $8,000 worth of gain.

janna scott: 00:23:34

Cool.

janna scott: 00:23:34

Let's report this not right.

janna scott: 00:23:37

But now the problem is under IRS codes, if you receive

janna scott: 00:23:40

something, it's considered income.

janna scott: 00:23:42

So now Kraken says, Hmm, look at that.

janna scott: 00:23:45

You got $10,000 worth of whatever crypto it is.

janna scott: 00:23:48

Let's report this as income.

janna scott: 00:23:49

And that's why I was so concerned about the 10, 90, 90 eights.

janna scott: 00:23:52

Now we have a break from it for now.

janna scott: 00:23:54

Who knows?

janna scott: 00:23:55

It's if it's gonna get implemented again, especially with the new

janna scott: 00:23:57

regulations where the IRS says the exchanges have to track basis, they're

janna scott: 00:24:01

already doing a horrible job at it.

janna scott: 00:24:03

Different story.

janna scott: 00:24:04

But you know, it is dangerous because it's, that's gonna cause even more

janna scott: 00:24:09

of issues because the IRS, again, I have seen incorrect 10 90 nines

janna scott: 00:24:13

from Morgan Stanley and Charles Schwab, where we knew it was wrong.

janna scott: 00:24:17

We contacted the IRS for my clients and the IRS said, well, you have

janna scott: 00:24:20

to put, take it up with them.

janna scott: 00:24:21

And then we had to because we believe what they gave us.

janna scott: 00:24:24

So then we have to go to this whole disaster.

janna scott: 00:24:26

Have you ever tried calling Coinbase?

janna scott: 00:24:28

You ever tried calling Kraken?

janna scott: 00:24:29

Good luck.

janna scott: 00:24:30

How are you gonna get it fixed?

Tedd Huff: 00:24:31

It's got like, it's not the same as calling the IS No.

janna scott: 00:24:34

Well, actually it's easier to get a hold of

janna scott: 00:24:36

the IRS than it is to Coinbase.

janna scott: 00:24:39

Yeah,

Tedd Huff: 00:24:40

that's too funny.

janna scott: 00:24:41

Yeah.

Tedd Huff: 00:24:41

But you know what, you know, as you, as you're talking of all these

Tedd Huff: 00:24:44

different things, the variance and numbers that you discovered surprised me a lot.

Tedd Huff: 00:24:48

35% ish minimum between platforms on identical data.

Tedd Huff: 00:24:54

For someone who's never done crypto taxes, help them understand what this actually

Tedd Huff: 00:25:01

means in real dollars and real audit risk.

Tedd Huff: 00:25:04

And then we can figure out, we can talk about the calculation

Tedd Huff: 00:25:07

of like, how you got there.

janna scott: 00:25:09

Let's look at just, just to test, and I just did this every, for

janna scott: 00:25:12

every year, but let's just take 2024.

janna scott: 00:25:15

I had an exchange and there were about 70 transactions.

janna scott: 00:25:19

Again, they're all testing transactions, right?

janna scott: 00:25:21

And the exchange itself does the tax calculations, and they told

janna scott: 00:25:25

me you have $99 worth of gain.

janna scott: 00:25:28

Great.

janna scott: 00:25:29

A lot of them were self transfers.

janna scott: 00:25:30

But I didn't worry about that because, you know, again, I have all these

janna scott: 00:25:33

other wallets and so I buy on the exchange and I just send it there.

janna scott: 00:25:37

So technically I don't have the gain, but let's just say, yep, $99 worth of gains.

janna scott: 00:25:41

Now this exchange is a shareholder and investor in two of the top products

janna scott: 00:25:48

on the market have crypto tax products on the market, and they endorse them.

janna scott: 00:25:53

And of course they, you know, they make money if they make money and

janna scott: 00:25:56

probably kickbacks and referral bonuses, et cetera, et cetera.

janna scott: 00:25:59

Great.

janna scott: 00:25:59

So I went to the two products endorsed by this exchange.

janna scott: 00:26:03

Now your assumption would be that.

janna scott: 00:26:06

If they're partnered up, if they're in that, you know, they should have

janna scott: 00:26:08

the same algorithms going on there.

janna scott: 00:26:10

Right?

janna scott: 00:26:10

There should have been some due diligence, some review something.

janna scott: 00:26:13

Okay, great.

janna scott: 00:26:14

So I go to the first product and I put in this, I did the OS two, right?

janna scott: 00:26:18

Connect straight to straight to my exchange.

janna scott: 00:26:21

So I connect straight via OS two into that exchange.

janna scott: 00:26:25

They pull the data and they tell me, on the same set of

janna scott: 00:26:28

data, I have a gain of $2,990.

janna scott: 00:26:32

Same set of data, 70 transactions.

janna scott: 00:26:34

Buy, sell, send.

janna scott: 00:26:36

Where the exchange told me $99.

janna scott: 00:26:38

Well, that's a big issue.

janna scott: 00:26:40

It's a very big issue because one, if nine, 2,990 is right, I am underreporting.

janna scott: 00:26:47

If I take what the exchange tells me, now we go to the the second product

janna scott: 00:26:51

that's endorsed and owned by them.

janna scott: 00:26:53

I put the same set of data in, again, pull it through S two.

janna scott: 00:26:56

I can't manipulate it.

janna scott: 00:26:57

It tells me you have a loss of $351, so nowhere close gain of 29 90 loss of 3

janna scott: 00:27:03

51 on the crypto tax products, right?

janna scott: 00:27:05

That, that say the IRS compliant and blah, blah, blah, blah, blah,

janna scott: 00:27:08

you know, all that fun stuff.

janna scott: 00:27:09

The implication would be, now this is, again, this is only 70

janna scott: 00:27:12

transactions of maybe me buying $20 there, $50 there, sending, you know, I

Tedd Huff: 00:27:18

mean, literally, I did not put a lot of money through it.

janna scott: 00:27:20

Now imagine it's a large trader.

janna scott: 00:27:22

I mean, somebody who buys a lot more who trades and that, that's

janna scott: 00:27:25

things like that, the, the variance would be, would be intense.

janna scott: 00:27:28

Now, let's add some zeros on us.

janna scott: 00:27:29

Let's say it tells me I have $29,000 of gain, and the other one

janna scott: 00:27:33

tells me I have $3,500 in loss.

janna scott: 00:27:35

The other one tells me I have $990 of gain.

janna scott: 00:27:38

Now, if I use the $990, but the 29,000 is right, I have $20,000

janna scott: 00:27:45

worth of capital gain, and it, in my case, the bus short term, right?

janna scott: 00:27:48

If it's long term grade, you had 20.

janna scott: 00:27:50

Short term, 28 to 37% tax.

janna scott: 00:27:54

So

Tedd Huff: 00:27:55

yeah,

janna scott: 00:27:55

what am I supposed to, like if I report the $99

janna scott: 00:27:59

or $990 and I missed $20,000?

janna scott: 00:28:03

There's penalties, there's interest, and it's compounded, you know, because

janna scott: 00:28:06

they're not gonna catch it right away.

janna scott: 00:28:07

Maybe they'll catch it in two or three, four years.

janna scott: 00:28:09

Ultimately, there's no statute of limitation.

janna scott: 00:28:12

If it's considered, you know, tax evasion and, and you intentionally

janna scott: 00:28:15

omitted it, et cetera, then if I go and report the loss of $3,500,

janna scott: 00:28:20

'cause we added some zeros, great.

janna scott: 00:28:22

That can take $3,000.

janna scott: 00:28:23

And now I saved on taxes because it lowered my taxable income by

janna scott: 00:28:27

$3,000 and I didn't report $29,000.

janna scott: 00:28:31

So now I'm looking at over $32,000 worth of taxable income that I

janna scott: 00:28:37

didn't, that I didn't pay tax on.

janna scott: 00:28:40

And that might not be, be the big deal for certain people, but it's certainly

janna scott: 00:28:43

a big deal for our middle cost, especially if it's two, three years.

janna scott: 00:28:47

Four years, five years, six years out from when it happened.

janna scott: 00:28:50

And how do you know which one is right?

janna scott: 00:28:52

You, how do you go to the IRS and sit there and say, well, this

janna scott: 00:28:56

is what Coinbase said, and well, I'll get to that part in a second.

janna scott: 00:28:59

And I just said, the network, I am not learning.

janna scott: 00:29:02

See, that's why I get in trouble a lot, whatever.

Tedd Huff: 00:29:04

Well, I mean, so one of the things that you did after

Tedd Huff: 00:29:07

finding these, these things, right?

Tedd Huff: 00:29:08

Mm-hmm.

Tedd Huff: 00:29:08

Is that you sent it to the exchange and Yeah.

Tedd Huff: 00:29:13

The, they, they, they did something Well, a few, the 36 out.

Tedd Huff: 00:29:18

Well,

janna scott: 00:29:18

well, so a few things happened.

janna scott: 00:29:19

So in 23 before we actually met with the S-E-C-I-R-S and congressional committees

janna scott: 00:29:25

and their attorneys, uh, in 23 when I had everything in order and I knew what

janna scott: 00:29:30

all of them are doing wrong and I had all the data organized, I reached out

janna scott: 00:29:35

to all the products that I audited, and I reached out to the exchanges who

janna scott: 00:29:39

endorsed these products, and I said.

janna scott: 00:29:41

Listen, I don't want any money because I didn't.

janna scott: 00:29:44

I was like, I just wanna give you the research because you, this is detrimental

janna scott: 00:29:47

to your users and us taxpayers and I think we wanna all make sure that we're okay.

janna scott: 00:29:50

Right?

janna scott: 00:29:51

And I was like, I just wanna give you the research for free.

janna scott: 00:29:53

The one major exchange compliance officer read it, luck me.

janna scott: 00:29:58

Like, okay, great.

janna scott: 00:29:59

All the other products were like, yeah, no thanks, we're good.

janna scott: 00:30:02

One I met with and I met with their CEO and tax attorney asked some

janna scott: 00:30:06

quick questions about how they got this and they couldn't answer it.

janna scott: 00:30:09

And then they tried to sell me their product and I'm like,

janna scott: 00:30:10

yeah, that's not why I'm here.

janna scott: 00:30:12

And so that's, after that we met with the SEC and IRS and you kind of hint at it.

janna scott: 00:30:17

We met first with the SEC Fin UP division and the enforcement

janna scott: 00:30:20

attorneys and they said, oh crap.

janna scott: 00:30:22

They said, but we don't oversee it, so let, I'll send you straight to

janna scott: 00:30:24

the IRS and congressional committees.

janna scott: 00:30:26

So we went, met with the directors for the crypto division of the IRS

janna scott: 00:30:30

and also the chief council, et cetera.

janna scott: 00:30:32

Went over our findings.

janna scott: 00:30:33

By the way, two of the products on that list that failed miserably, the

janna scott: 00:30:37

IRS had contracts with to try and integrate them into their system.

janna scott: 00:30:40

They don't have those contracts any longer.

janna scott: 00:30:41

But during our discussions and after we presented our findings, we

janna scott: 00:30:44

said, so how do you do your audits?

janna scott: 00:30:46

And they say, well, based on your research, we're doing them wrong.

janna scott: 00:30:48

I'm like, oh, how do you do them?

janna scott: 00:30:50

And so they explained us, said, yeah, that's very bad.

janna scott: 00:30:52

And so they, they did stop the audits.

janna scott: 00:30:55

Then they started sending out requests for information and requests for

janna scott: 00:30:58

proposals, which we responded to.

janna scott: 00:31:00

Then they stopped and they went into contact with Shane.

janna scott: 00:31:02

Analysis.

janna scott: 00:31:03

Again, love hate relationship, right?

janna scott: 00:31:04

I mean, I admire what they've done.

janna scott: 00:31:06

It's amazing.

janna scott: 00:31:06

But still, so since then we've worked with multiple different universities

janna scott: 00:31:12

and, you know, have been published.

janna scott: 00:31:13

And so this April, April, 2025, I finally had enough and I said, you know what?

janna scott: 00:31:20

Let's compile all the, all the research we have for that one major

janna scott: 00:31:24

exchange that endorses these two products and does it themselves wrong.

janna scott: 00:31:28

And just give them a breakdown and say, Hey, talk to us.

janna scott: 00:31:32

Our attorney sent out a long, detailed letter with all the proof, all the

janna scott: 00:31:36

write-ups, nothing threatening, and less than 36 hours later, for

janna scott: 00:31:41

the first time in eight years, they updated their terms of services.

janna scott: 00:31:46

If you didn't sign, by the way, by May, your account would've been shut down.

janna scott: 00:31:51

The change of terms of services said no more cross action lawsuits allowed.

janna scott: 00:31:55

Arbitration is mandatory, and they took away all the liability for their own

janna scott: 00:31:59

tax calculations and any third parties that they're ever endorsing you to.

janna scott: 00:32:03

So I don't think they really much liked our letter.

janna scott: 00:32:06

They haven't contacted us, obviously, but you know.

janna scott: 00:32:09

I don't think they liked what we wrote and the proof we've given

janna scott: 00:32:12

them, because that was a very quick response for a large company to

janna scott: 00:32:15

rewrite their terms of services.

janna scott: 00:32:16

Let me back up again.

janna scott: 00:32:17

So in 23, after the IRS and SEC, and not nobody did anything, I did

janna scott: 00:32:22

my little monthly quarterly report pulling for all of these ex all of

janna scott: 00:32:25

these products, and I pulled it in September of 23 and I had pulled it

janna scott: 00:32:29

last, I think probably June of 2023.

janna scott: 00:32:33

We had given them the, you know, heads off that something

janna scott: 00:32:35

is wrong with their products.

janna scott: 00:32:37

In January, February of 23, when I pulled it, I was like, what is happening?

janna scott: 00:32:42

Because I reviewed my 22 and 21 and, and, and 2020 taxes again.

janna scott: 00:32:47

I was like, why are they different?

janna scott: 00:32:50

And so I've pulled up previous reports that I've pulled on the same set of data.

janna scott: 00:32:53

Nothing changed.

janna scott: 00:32:54

I mean, I can't go backwards and make transactions appear backwards, right?

janna scott: 00:32:57

So they should have stayed the same and they always stayed the same.

janna scott: 00:33:00

And so I pulled the, when I pulled them, all of a sudden there was a 35%.

janna scott: 00:33:04

25 to 35% variance.

janna scott: 00:33:06

So they tried to make changes and fix their own mistakes.

janna scott: 00:33:10

I would've given them the research for free and they could've done

janna scott: 00:33:12

it in two seconds, but they did it and they're still not right.

janna scott: 00:33:16

But now we have the issue.

janna scott: 00:33:18

What is it?

janna scott: 00:33:19

I get audited for 22 and I say, listen, I tried my best.

janna scott: 00:33:23

And the IRS says, great.

janna scott: 00:33:24

If you tried your best and you did report, and we know you didn't have any other

janna scott: 00:33:27

option because they were all wrong, but you tried your best, please pull the

janna scott: 00:33:30

report and say, show us the report that you used for your 22 or 21 reporting.

janna scott: 00:33:35

So you go to the website and you pull your report and you give it to them

janna scott: 00:33:38

and they say, well, this doesn't match.

janna scott: 00:33:40

You had more gains on here than you had on there, or you had, this doesn't match.

janna scott: 00:33:45

So what are you supposed to do?

janna scott: 00:33:47

Because it would've been so simple for them to send out an email, and

janna scott: 00:33:52

we scoured our emails because we're signed up for newsletters and updates.

janna scott: 00:33:56

We scoured our email for it, and it would've been so easy

janna scott: 00:33:59

for all of the products to save.

janna scott: 00:34:02

Hey, the IRS made updates to the regulations because they always do.

janna scott: 00:34:05

So we had to make some changes.

janna scott: 00:34:07

We would suggest that if you, if there were some adjustments, please

janna scott: 00:34:11

pull your reports again and go amend.

janna scott: 00:34:13

And it wouldn't be, it wouldn't be a liability to them.

janna scott: 00:34:16

It would be a liability to the individual, but at least they let them know.

janna scott: 00:34:20

Now they didn't.

janna scott: 00:34:21

And so thankfully it's all reported and been peer reviewed by the universities

janna scott: 00:34:25

because we have recordings of it all.

janna scott: 00:34:27

We have screenshots, we have print, you know, we have everything.

Tedd Huff: 00:34:30

You have the receipt.

janna scott: 00:34:31

I have the receipts.

janna scott: 00:34:32

Yeah.

janna scott: 00:34:33

You know, so that's when I said, I said, screw this.

janna scott: 00:34:36

I'm done trying to rely on others.

janna scott: 00:34:38

Again, my stubbornness, see, my co OO says, I shouldn't say stubborn.

janna scott: 00:34:42

She said something that sounds nicer, but I call myself stubborn.

janna scott: 00:34:45

So my stubbornness said, well, you know what, I'm just gonna build it myself.

janna scott: 00:34:49

Focus

Tedd Huff: 00:34:49

and determine.

Tedd Huff: 00:34:50

Yeah.

Tedd Huff: 00:34:50

Focus.

janna scott: 00:34:51

Exactly.

janna scott: 00:34:51

Yeah.

janna scott: 00:34:51

Yeah.

janna scott: 00:34:52

I like stubborn better.

janna scott: 00:34:54

I was like, you know what, I'm just gonna build my own again, easier said than

janna scott: 00:34:57

done, but I said, I'm gonna build my own.

janna scott: 00:34:59

Because if nobody gets it right, considering this, there has been tens of

janna scott: 00:35:02

millions of John do letters or the John do letters, return tens of millions of

janna scott: 00:35:07

us taxpayers names, and there's, there's, you know, 10, 15 million active traders

janna scott: 00:35:13

consistently out there, and probably 50 million people have touched crypto one

janna scott: 00:35:18

on, you know, at one point or another, the damages to the individuals will be

janna scott: 00:35:23

detrimental because, and that's what I said earlier, even if the numbers,

janna scott: 00:35:27

even if these products were right or close to right, they would still

janna scott: 00:35:33

not be able to be used in an audit.

janna scott: 00:35:37

Because of their features.

Tedd Huff: 00:35:39

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Tedd Huff: 00:36:41

and one of the comparisons that, that you had made with me earlier is like between

Tedd Huff: 00:36:47

crypto tax platforms and QuickBooks.

Tedd Huff: 00:36:50

I, I really think it was really brilliant and terrifying.

Tedd Huff: 00:36:53

Okay.

Tedd Huff: 00:36:53

At the same time, but I, I want you to help the audience

Tedd Huff: 00:36:58

understand it a little bit more.

Tedd Huff: 00:37:00

So explain why the IRS asks for bank statements in an audit, but never

Tedd Huff: 00:37:08

will ask for your QuickBooks and how this same principle destroy,

Tedd Huff: 00:37:14

destroys the credibility of some of the crypto tax platforms.

janna scott: 00:37:19

Yeah.

janna scott: 00:37:19

So.

janna scott: 00:37:20

Let's say you're a business owner and you're being audited and you have

janna scott: 00:37:22

QuickBooks where you keep your profit or loss and you categorize your transactions.

janna scott: 00:37:27

The thing is, every book has to have adjusted journal entries at the

janna scott: 00:37:31

end of the year, just because taxes are being calculated differently

janna scott: 00:37:34

than just your regular accounting.

janna scott: 00:37:36

You can manipulate data.

janna scott: 00:37:37

I mean, I can listen.

janna scott: 00:37:38

I can import my transactions, but I can delete it or I can make up one.

janna scott: 00:37:41

I can make it look like I made $15 million last year, even though I made $1,500.

janna scott: 00:37:47

I can manipulate all the data, and that's not set up for it to

janna scott: 00:37:50

be used for fraudulent purposes.

janna scott: 00:37:53

It's just set up because we will pay things with cash, or we will

janna scott: 00:37:57

use other means that might not be reflected on bank statements, or it

janna scott: 00:38:02

might not be reflected, you know, like depreciation, things like that.

janna scott: 00:38:05

They have to have adjusted general duties and that's fine.

janna scott: 00:38:08

But the IRS also knows they can't rely on this.

janna scott: 00:38:11

So when the IRS comes, they ask for receipts and they ask for invoices,

janna scott: 00:38:16

and they ask for bank state.

janna scott: 00:38:18

And they ask for it to match because bank statements, listen, the IRS has a problem.

janna scott: 00:38:22

If you ever think about manipulating A PDF, bank statements don't do it.

janna scott: 00:38:26

They have a program, they run it through.

janna scott: 00:38:27

They can tell them if it was manipulated, don't do it.

janna scott: 00:38:30

Been there, done that with a client before.

janna scott: 00:38:32

I'm like, oh crap, don't do that.

janna scott: 00:38:34

So they want the bank statements that come directly from the bank,

janna scott: 00:38:38

you know, with all the details.

janna scott: 00:38:40

They want the official invoices, the titles, cars, et cetera.

janna scott: 00:38:44

They don't want anything that can be manipulated.

janna scott: 00:38:46

So the same with these products, the issues with these products, and we go

janna scott: 00:38:50

back to what I said earlier, how I created these wallets and ran test transactions

janna scott: 00:38:56

to see how it comes over on an API when I pull it from the blockchain.

janna scott: 00:39:00

These products didn't do that.

janna scott: 00:39:01

So they had to be able to let you, the user categorize things.

janna scott: 00:39:07

That would've been fine if they let you categorize

janna scott: 00:39:10

transactions as a self transfer.

janna scott: 00:39:12

You know, things like that.

janna scott: 00:39:13

But they took it even further.

janna scott: 00:39:15

And I said this, I like this.

janna scott: 00:39:16

What happens on the blockchain?

janna scott: 00:39:18

Stays on the blockchain.

janna scott: 00:39:19

I was just in Vegas.

janna scott: 00:39:20

So, you know.

janna scott: 00:39:20

But what happens on the blockchain stays on blockchain.

janna scott: 00:39:22

We all know you send something, you do something, you cannot reverse it.

janna scott: 00:39:26

Now these products have features and they're necessary because they don't

janna scott: 00:39:30

know if they're pulling things right.

janna scott: 00:39:31

And then they just, they know they're not pulling things right.

janna scott: 00:39:34

So they had to have a way to correct it and they don't know

janna scott: 00:39:37

how to, so you have to do it.

janna scott: 00:39:38

But it all comes with the feature of editing a transaction.

janna scott: 00:39:42

And I'm not saying like I'm making it a self transfer or whatever.

janna scott: 00:39:45

No, no.

janna scott: 00:39:46

You can edit the date time currency.

janna scott: 00:39:49

Let's say you sold Bitcoin, they allow you to change it to

janna scott: 00:39:52

Ethereum, Solana, whatever you want.

janna scott: 00:39:53

They allow you to change the basis, the spot price, the fees.

janna scott: 00:39:57

Anything that is definitely set in stone, they allow you to change and that

janna scott: 00:40:00

alone will disqualify the product from you being able to use it in an audit.

Tedd Huff: 00:40:04

So when you say these platforms allow the users to change

Tedd Huff: 00:40:07

currency, types, dates, timestamps, fees, values, the basis, you're

Tedd Huff: 00:40:13

essentially saying they're allowing people to create their own reality.

Tedd Huff: 00:40:17

And how does, how does Defi tax handle this differently?

Tedd Huff: 00:40:21

I just, uh, like I'm, I'm hearing all these things and I'm like, alright,

Tedd Huff: 00:40:24

well let's, let's, let's understand how it's supposed to be done.

janna scott: 00:40:27

Well, so ultimately we, like I said, we've done a lot of trial

janna scott: 00:40:31

and error on our own set of data.

janna scott: 00:40:33

We have the amount of wallets we have and exchanges and I have 15 more I actually

janna scott: 00:40:38

have to set up is absolutely insane.

janna scott: 00:40:40

But we did it ourselves so we know how it came over so we know how to categorize it.

janna scott: 00:40:46

'cause we did all the different set of transactions.

janna scott: 00:40:47

Bought NFTs, sold NFTs, moved.

janna scott: 00:40:49

This did trades said I, all of it.

janna scott: 00:40:52

We know how it comes over on the back end, so we know how to categorize

janna scott: 00:40:56

it so that you don't have to, and we don't put that on you because first of

janna scott: 00:41:00

all, you might not even know anymore what the heck you did back then.

janna scott: 00:41:03

But second of all, we will never ever allow you to change the

janna scott: 00:41:08

basis or, or purchase fi spot price fee of a transaction.

janna scott: 00:41:14

It is all very, very pri set up on the blockchain.

janna scott: 00:41:17

Okay?

janna scott: 00:41:18

We have the dates and timestamps.

janna scott: 00:41:19

We know how to get the basis if it's missing, we know

janna scott: 00:41:22

how to trace it backwards.

janna scott: 00:41:24

For NFTs, we've built it all out that there's no need for you to do this.

janna scott: 00:41:29

Now, we do allow you to categorize some of the transactions.

janna scott: 00:41:33

For example, if you receive crypto, it's automatically income, however,

Tedd Huff: 00:41:36

so what's the difference between categorizing versus manipulating?

Tedd Huff: 00:41:42

Like that's a piece that sounds similar.

janna scott: 00:41:44

Yeah, so there's different categories that, that,

janna scott: 00:41:46

that trigger taxable events.

janna scott: 00:41:48

So the categories are buy and sell.

janna scott: 00:41:51

Right.

janna scott: 00:41:52

Then there's trade, there is, uh, transfer, um, there is send, there's

janna scott: 00:41:58

receive, there's, you know, staking.

janna scott: 00:42:00

And those are all the, the, the types of things you can do on the blockchain

janna scott: 00:42:06

that can trigger taxable events.

janna scott: 00:42:08

The manipulation part, the editing of the transactions is you literally change

janna scott: 00:42:13

the core of that transaction, the, the whatever it, if it was a trade, you

janna scott: 00:42:17

can change it from point to you here.

janna scott: 00:42:19

Right?

janna scott: 00:42:19

Those are the editing and manipulation of something that is set in stone now.

Tedd Huff: 00:42:24

So what comes to mind also now is I think about like validator accounts

Tedd Huff: 00:42:28

and burn fees and all these other things.

Tedd Huff: 00:42:30

Like how does

Disclaimer: 00:42:31

that go?

janna scott: 00:42:32

Yeah, we're the only product that catches it.

janna scott: 00:42:34

So we have people that have validator accounts that, and especially with

janna scott: 00:42:37

validator accounts, if you even try to connect those addresses to any of the

janna scott: 00:42:43

products, they come up with nothing.

janna scott: 00:42:44

Or they would come up with five failed transactions, not the tens of

janna scott: 00:42:47

thousands that are actually on there.

janna scott: 00:42:50

One key aspect is, is a validator account would be considered income

janna scott: 00:42:54

to the individual, but one key factor is there's burn fees.

janna scott: 00:42:59

Some of the fees that they're receiving are actually burned in the

janna scott: 00:43:02

process of this validation happening.

janna scott: 00:43:05

And so we are actually able to subtract the burn fees to show the

janna scott: 00:43:09

real amount of income that they are perceived due to the fees.

janna scott: 00:43:14

So that's,

Tedd Huff: 00:43:14

is, is that, that looked at the same way as a gas fee then?

janna scott: 00:43:17

Yeah, it's in, so the, you know, on your end it's an expense

janna scott: 00:43:21

and on their end it's income to them, like ordinary income not gain.

Tedd Huff: 00:43:25

And I start to think about, you know, the NFTs as well, right.

Tedd Huff: 00:43:28

So like how are you, how should we be looking at tracing the basis, uh,

janna scott: 00:43:38

yeah.

Tedd Huff: 00:43:38

Categorizing that properly.

Tedd Huff: 00:43:40

Because I know like some of the other platforms I've worked with require.

janna scott: 00:43:45

For you to tell the base a pretty

Tedd Huff: 00:43:46

substantial letter of of work to get it

janna scott: 00:43:49

right.

janna scott: 00:43:49

Exactly.

janna scott: 00:43:49

Yeah.

janna scott: 00:43:50

They, they require you to put in the basis if you did not purchase it yourself.

janna scott: 00:43:54

So we actually found a way to trace the NFTs based on the type of NF T and

janna scott: 00:44:00

trace it back to the source so we know, so for example, you receive an NFT

janna scott: 00:44:07

from me and I received that NFT from a friend of mine, and that friend got it

janna scott: 00:44:11

from somebody who actually bought it.

janna scott: 00:44:13

So they bought it, initially it was bought for $5, then it was sent

janna scott: 00:44:17

to my friend and it was worth $10.

janna scott: 00:44:19

So her basis, and it is $10, she has $10 of ordinary income

janna scott: 00:44:22

and $10 of basis in the NFT.

janna scott: 00:44:25

But then she sends it to me and now it's worth $15.

janna scott: 00:44:28

So now she has a $5 gain and I have a NFT with a basis of $15.

janna scott: 00:44:33

And then I send it to you and now it's worth $20.

janna scott: 00:44:36

I have $5 of gain and you have a $20 basis NFT.

janna scott: 00:44:40

However, on the blockchain.

janna scott: 00:44:44

On the other products, it doesn't show the basis of it.

janna scott: 00:44:48

So we trace it that to the first time somebody actually purchased it, and then

janna scott: 00:44:53

when they transferred it, we add the basis onto it, right When it changed hands,

janna scott: 00:44:58

we can calculate the basis based on the time of that currency, whatever the NFT

janna scott: 00:45:02

is made out of, of that currency based on how much it worked was worth at that time.

janna scott: 00:45:07

So we can trace the NFT.

Tedd Huff: 00:45:08

So now you got me quote, like as you're talking about this, and my

Tedd Huff: 00:45:11

mind's going, I'm like, all right, so does that mean that you're looking at

Tedd Huff: 00:45:15

what, like where, where are you getting the rate for that spot moment in time?

Tedd Huff: 00:45:22

If you look at

janna scott: 00:45:23

on various sources, because everybody

Tedd Huff: 00:45:25

gives crack, and I look at Coinbase, I get three completely

Tedd Huff: 00:45:29

different values for a coin.

Tedd Huff: 00:45:32

Like how you choose the least expensive one.

Tedd Huff: 00:45:35

Most expensive.

janna scott: 00:45:36

No, we take, we take three different, yeah, we take three different

janna scott: 00:45:40

sources and we get the average of it.

janna scott: 00:45:42

At the time and date, and that is the most accurate.

janna scott: 00:45:44

And listen, some of the, you know, some of the products they report the basis at what

janna scott: 00:45:49

they sold it to you for and that's great.

janna scott: 00:45:51

Then we have it.

janna scott: 00:45:52

But for anything that we haven't, we take the average at the date

janna scott: 00:45:56

and time stamp and we take off of the sources that we can go with.

janna scott: 00:46:00

But we take three sources and we take the average of it.

janna scott: 00:46:03

And so that's all in the algorithms, right?

janna scott: 00:46:04

It's all in the backend.

janna scott: 00:46:06

And we keep track of the sources too.

janna scott: 00:46:09

You know, we show if the IRS should audit you, we can give them all the details as

janna scott: 00:46:13

to why we got to this and how we use that.

janna scott: 00:46:15

Because if they only use one source, we can say that's an easy, if we go to tax

janna scott: 00:46:19

court, we say, we used resources and took the average, they only used one.

janna scott: 00:46:23

Ours is much better than yours.

janna scott: 00:46:25

It's just, so we have built it in a way, and, and, well, let's

janna scott: 00:46:28

go back to the categorization.

janna scott: 00:46:29

So if you just, let's say you connect one of your wallets, you know, you

janna scott: 00:46:34

didn't connect the other two because you don't remember the address

janna scott: 00:46:36

anymore, you can't get to them.

janna scott: 00:46:38

You, you know, lost it and you have nothing in there, but you

janna scott: 00:46:40

use them at one point or another.

janna scott: 00:46:42

Let's say there is a something that you sent to the wallet, you connected and

janna scott: 00:46:48

you say, oh wait, this is an income.

janna scott: 00:46:50

I actually sent this from my other wallet.

janna scott: 00:46:54

I don't remember that wallet, but I'm gonna categorize it as a self transfer.

janna scott: 00:46:58

So a self transfer would make that non-taxable.

janna scott: 00:47:01

Problem is people can lie.

janna scott: 00:47:04

So I don't just let you go and say self transfer in order to get rid

janna scott: 00:47:08

of the taxable component of it.

janna scott: 00:47:10

You say self transfer.

janna scott: 00:47:12

We say, okay, public blockchain, private blockchain exchange, or public

janna scott: 00:47:17

blockchain wallet, or you know, anything you say, oh, it's a public blockchain.

janna scott: 00:47:20

We say, great, we're gonna pull it and add it to your account automatically.

janna scott: 00:47:24

So you can't Now, if you lie to us now you have a whole nother wallet attached

janna scott: 00:47:28

to your calculations and if you didn't lie, you have your, you, we just found

janna scott: 00:47:33

your missing wallet and attached it.

janna scott: 00:47:34

And now everything that came from there is no longer income producing.

janna scott: 00:47:38

Now we have the accurate basis for you as well.

janna scott: 00:47:41

'cause your basis is what you purchased it for in your other wallet, not

janna scott: 00:47:44

the basis and what it came over.

janna scott: 00:47:46

So we match it all.

janna scott: 00:47:47

Now if you lie to us, no, you have another wallet attached.

janna scott: 00:47:50

You might not want that because you don't know what's happening there.

janna scott: 00:47:53

But that's your thro.

janna scott: 00:47:54

If you wanna pay more tax, go for it.

janna scott: 00:47:55

And then if it is an exchange, unfortunately because it's a private

janna scott: 00:47:58

blockchain, we can't just hold the data so we'll, you know, be like, okay listen,

janna scott: 00:48:03

you have to connect to it, you have to find it, you have to connect to it.

janna scott: 00:48:07

And so, and we can help with finding ways to connect, especially if you lost it.

janna scott: 00:48:12

You know, our people use finance us, they can't use it anymore.

janna scott: 00:48:15

So we're working on that so people can actually get their data over.

janna scott: 00:48:19

And then again, you have an option and that's in the other products to say,

janna scott: 00:48:22

look, I gifted this to my my friend.

janna scott: 00:48:25

And that's fine.

janna scott: 00:48:26

You can gift all you want, but if you select gif, we're

janna scott: 00:48:29

gonna ask you for some info.

janna scott: 00:48:30

We're gonna say, Hey, are you married to a single?

janna scott: 00:48:33

Because the changes the threshold.

janna scott: 00:48:35

Then we say, okay, well let's give us the info of your friend, because that

janna scott: 00:48:39

way you have it for record keeping.

janna scott: 00:48:40

We allow you to upload, you know, like if you say was a donation,

janna scott: 00:48:44

we allow you to upload to that transaction, the donation receipt.

janna scott: 00:48:48

So you have it always set up.

janna scott: 00:48:49

If not, it happens.

janna scott: 00:48:50

You have it all, all put together very nicely.

janna scott: 00:48:53

And then we, we set up a bookkeeping version for businesses that they

janna scott: 00:48:56

can add their receipts to it, the invoices, whatever it is to show.

janna scott: 00:49:00

But even emails, right?

janna scott: 00:49:02

Just say, let's say you send an email and say, Hey, you owe me 0.5

janna scott: 00:49:06

Bitcoin for the service that produced.

janna scott: 00:49:07

Okay, great.

janna scott: 00:49:08

Here you go.

janna scott: 00:49:09

I'm gonna add this to add the screenshot of the email to that transaction so you

janna scott: 00:49:13

can keep records very cleanly that if you get audited and you hire us to handle

janna scott: 00:49:17

your audit, which you definitely should, 'cause we can sit in front of the IRS

janna scott: 00:49:20

and manually calculate your transactions.

janna scott: 00:49:22

Nobody else can that I can show my work, right?

janna scott: 00:49:25

Like a math class and I can show why they're wrong and I'm right.

janna scott: 00:49:29

And then we have a full packet, right?

janna scott: 00:49:30

And we can say, Hey, here you go.

janna scott: 00:49:32

We'll argue back and forth a little bit, you know, but we can do it manually.

janna scott: 00:49:35

I've done it manually for 20,000 transactions across three different

janna scott: 00:49:39

places, and I can show my work.

Tedd Huff: 00:49:41

Well, I, I want, I wanna go back 'cause you'd started to

Tedd Huff: 00:49:44

talk about something earlier that had some major implications, right?

Tedd Huff: 00:49:49

So there's something you discovered that actually should be pretty

Tedd Huff: 00:49:54

terrifying to anyone that's used one of the other platforms mm-hmm.

Tedd Huff: 00:49:58

Or one of the platforms that you audited and reviewed.

Tedd Huff: 00:50:04

And I want you to kind of tell me about the algorithm changes that you

Tedd Huff: 00:50:10

exposed, you'd mentioned, and maybe go a little bit deeper into the major, how

Tedd Huff: 00:50:16

these major platforms tried to fix it.

Tedd Huff: 00:50:20

Didn't tell you didn't

janna scott: 00:50:22

as a user.

janna scott: 00:50:22

Yeah.

janna scott: 00:50:22

Didn't user.

janna scott: 00:50:24

Yeah.

janna scott: 00:50:24

So

Tedd Huff: 00:50:25

let's, what, what does this mean for somebody who.

Tedd Huff: 00:50:28

Gets audited for 2021 or 2022.

janna scott: 00:50:32

I mean, listen, if in 21 and 22 you didn't report anything

janna scott: 00:50:35

anyways, it doesn't really mean much, right, because you didn't report.

janna scott: 00:50:40

So, uh, but again, even in an audit, these reports would be

janna scott: 00:50:44

useless just because of, of the IRS.

janna scott: 00:50:47

The government knows the, my research has been published, but it's not

janna scott: 00:50:50

just been published on tax notes.

janna scott: 00:50:52

The university actually sent the research before we, um, uh,

janna scott: 00:50:56

removed the NDA that disallowed them from publishing it publicly.

janna scott: 00:51:00

It wa first went to congressional committees and the government, right?

janna scott: 00:51:04

So they know that all these products are inaccurate.

janna scott: 00:51:07

They've known for a while, but no, they know for sure.

Tedd Huff: 00:51:10

So what happens, like if I do get audited and my numbers come out to

Tedd Huff: 00:51:14

be a 35 ish, 40%, whatever the percentage is difference from what it was before,

Tedd Huff: 00:51:21

like what actually happens in that audit?

janna scott: 00:51:23

Well, this is the thing.

janna scott: 00:51:24

Let's say you get audited and you used any of the products, okay?

janna scott: 00:51:28

And let's say the IRS, you know, something gets pushed through and the IRS says,

janna scott: 00:51:33

okay, listen, anybody who tried and used one of those products, right?

janna scott: 00:51:39

You're not gonna get the tax evasion penalties, you're not gonna get the un,

janna scott: 00:51:42

you know, under reporting penalties and things like that, you're still gonna

janna scott: 00:51:45

get the late payment penalties, you're still gonna get your interest, but you're

janna scott: 00:51:48

not gonna get the substantial penalties that would really cause an issue.

janna scott: 00:51:52

Uh, and I can see that happening, right?

janna scott: 00:51:54

Because people tried if you tried and if you followed what these reports gave you.

janna scott: 00:51:58

So now you go to, and there's only one out of the 14 products

janna scott: 00:52:01

that did not try to make changes.

janna scott: 00:52:03

So those still match.

janna scott: 00:52:04

But the other products, I'll try to make changes.

janna scott: 00:52:07

And so what exactly they did?

janna scott: 00:52:10

I didn't go down that rabbit hole again because I didn't want to, I just

janna scott: 00:52:13

know it was different and they didn't care about my opinion the last time.

janna scott: 00:52:17

So I don't really care about giving them a solution this time, but I

janna scott: 00:52:22

know, and I had multiple people.

janna scott: 00:52:24

Double check it.

janna scott: 00:52:25

People who use these products, I called another CPA from my know, and I said,

janna scott: 00:52:29

Hey, any of your clients who use that product, can you have them check?

janna scott: 00:52:32

And it came back 25 to 35% difference for all of them.

janna scott: 00:52:36

So the issue is this.

janna scott: 00:52:37

Now let's say you got audited and they say, okay, well you tried

janna scott: 00:52:40

to report, what did you use?

janna scott: 00:52:41

Well use A, B, C. They say, okay, great.

janna scott: 00:52:44

Give us the report.

janna scott: 00:52:45

Now hopefully the original report is still available to them.

janna scott: 00:52:49

You know, if it's three, four years, some people might not have it anymore.

janna scott: 00:52:53

And they go in and pull it themselves again and they show it to them and

janna scott: 00:52:57

they say, Hey, yeah, here's the report.

janna scott: 00:52:58

And the IRS says you, and it could be good or bad, right?

janna scott: 00:53:01

So let's say you 30, 25 to 35% went down on that report and they say,

janna scott: 00:53:06

oh, well you over-reported it, fool.

janna scott: 00:53:09

Good.

janna scott: 00:53:10

Doesn't mean that the IRS says you over-reported it up that they

janna scott: 00:53:12

do the math, but you're not gonna get in trouble for underreporting.

janna scott: 00:53:15

Well, let's say it go in the other way.

janna scott: 00:53:17

That's where the issue starts, right?

janna scott: 00:53:19

Then you say, well, but that's what they said.

janna scott: 00:53:21

Well.

janna scott: 00:53:22

Proof that that's what they said.

janna scott: 00:53:24

Proof that they make the changes.

janna scott: 00:53:25

Right.

janna scott: 00:53:26

So it can be the difference between having the substantial

janna scott: 00:53:31

penalties attached you audit or not.

janna scott: 00:53:34

And listen, based on the IRS math, based on my math, since crypto has become a

janna scott: 00:53:42

thing, you know, let's say from 2009 until, let's just say, and this was my

janna scott: 00:53:46

calculation back in 2023, the IRS probably missed out on about $146 billion in

janna scott: 00:53:54

capital gains tax and ordinary income tax.

janna scott: 00:53:57

They're gonna go find a, somehow

Tedd Huff: 00:54:00

they will.

Tedd Huff: 00:54:00

We've come to my favorite part of the show.

Tedd Huff: 00:54:03

So really, I mean, everything we've talked about is just, it really

Tedd Huff: 00:54:07

expresses like how the crypto tax landscape has changed dramatically

Tedd Huff: 00:54:14

just over the last five years really.

Tedd Huff: 00:54:17

You've actually had this front row seat to what has happened and kind of get to

Tedd Huff: 00:54:23

see what's in the works as we talk about.

Tedd Huff: 00:54:26

Mm-hmm.

Tedd Huff: 00:54:26

But what I want you to do is I want you, I want you to take

Tedd Huff: 00:54:30

a look into my crystal ball.

Tedd Huff: 00:54:31

I want you to look deep into the crystal ball.

janna scott: 00:54:33

I'm trying,

Tedd Huff: 00:54:34

and tell me what you see in the next three to five years when it

Tedd Huff: 00:54:39

comes to crypto tax compliance enforcement and what is it that you're seeing?

janna scott: 00:54:48

And I don't wanna make this political, it's just, you know, something

janna scott: 00:54:53

that's been happening over and over.

janna scott: 00:54:55

Republicans are in office, IRS shrinks Democrats, i I, office IRS goes up,

janna scott: 00:55:00

tax breaks disappear, et cetera.

janna scott: 00:55:02

Considering that the 10 99 dayss that I really don't like, were in discussions.

janna scott: 00:55:07

And then President Trump came into office, he got rid of them.

janna scott: 00:55:09

So my assumption is that, you know, either doing Trump's presidency or right after.

janna scott: 00:55:16

That's going to be a major thing that's gonna be implemented again for 10 99

janna scott: 00:55:19

VAs, which is gonna be detrimental.

janna scott: 00:55:21

It's going to be a mess Now, and I can be very cocky.

janna scott: 00:55:24

I can say, well, it won't be a mess if these exchanges would use my

janna scott: 00:55:27

freaking algorithms, because then they could actually trace, right?

janna scott: 00:55:30

So that would be a good solution.

janna scott: 00:55:31

And again, I didn't do this to make money.

janna scott: 00:55:33

I tried to give this away for free multiple times.

janna scott: 00:55:35

People didn't care.

janna scott: 00:55:36

I just don't want the damages that can happen.

janna scott: 00:55:39

And that brings us to the next thing.

janna scott: 00:55:40

So enforcement's gonna happen.

janna scott: 00:55:42

My gut feeling is the audits are going to start within the next

janna scott: 00:55:46

six months to six to 18 months.

janna scott: 00:55:48

The audits are going to be in full spring.

janna scott: 00:55:50

They're gonna start with high income earners first

janna scott: 00:55:52

and then work their way down.

janna scott: 00:55:53

Now the good thing is high income earners.

janna scott: 00:55:55

They're gonna have the money to get representation and hopefully go in front

janna scott: 00:55:58

of tax court and get some precedent set that hopefully will help our

janna scott: 00:56:03

middle class one once it hits them.

janna scott: 00:56:05

However, if we look at our middle class.

janna scott: 00:56:07

Let's say they made some money in 20, in 29 in 2019, and

janna scott: 00:56:11

they made some money in 24.

janna scott: 00:56:12

Not a lot.

janna scott: 00:56:13

Maybe they have 10, $15,000 in games, right?

janna scott: 00:56:16

Maybe 20, maybe more, but not a lot.

janna scott: 00:56:18

But not for them to be like, yay.

janna scott: 00:56:20

Right?

janna scott: 00:56:21

So now let's say it wasn't 2019 interest rate, right now for compounding IRS is 8%.

janna scott: 00:56:26

It's always been between six, seven, 8%.

janna scott: 00:56:28

And then the penalties, let's imagine they probably didn't report

janna scott: 00:56:31

because 2019, who knew about it?

janna scott: 00:56:33

Who nobody reported the little box on your return didn't pop off until 2021.

janna scott: 00:56:37

But now you're under audit for all the years, not just 20 19, 20 19, 20 20,

janna scott: 00:56:41

because there's no statute of limitation if they consider a tax evasion.

janna scott: 00:56:45

And that's what I'm talking about precedent.

janna scott: 00:56:46

I'm gonna hope that somebody sets a precedent that it shouldn't

janna scott: 00:56:49

considered a tax evasion.

janna scott: 00:56:50

We'll see if it doesn't, the middle class is gonna look at $20,000 capital gains.

janna scott: 00:56:56

Let's say.

janna scott: 00:56:56

Hopefully it was long term.

janna scott: 00:56:58

You know, that's only, that's only $4,000, not with the interest

janna scott: 00:57:02

in the penalties attached.

janna scott: 00:57:03

You gotta look at more like.

janna scott: 00:57:05

We gonna have to, we are gonna have the middle class that are, they rely on their

janna scott: 00:57:08

two, three, $4,000 refund every year to whatever it is, fix their car, buy their

janna scott: 00:57:13

kids clothes, go on a vacation that's gonna disappear until it is paid off.

janna scott: 00:57:18

The slower you pay off, the more interest gets compounded, the more penalties

janna scott: 00:57:22

get increased, et cetera, et cetera.

janna scott: 00:57:23

Right?

janna scott: 00:57:24

So it's something that they're gonna be stuck in for 3, 4, 5 years before enough

janna scott: 00:57:28

of their refunds are gonna be taken.

janna scott: 00:57:30

Those refunds are going to also be detrimental because they're

janna scott: 00:57:33

not gonna be put into our economy.

janna scott: 00:57:35

So it's this snowball effect, right?

janna scott: 00:57:37

That's what I'm seeing.

janna scott: 00:57:38

So ultimately, my goal for this is to really get people

janna scott: 00:57:42

to understand it and listen.

janna scott: 00:57:44

If I could scream from the rooftops and say, can you just listen?

janna scott: 00:57:47

And somebody would, that would be amazing.

janna scott: 00:57:48

But none of the products are going to admit that they've done it wrong.

janna scott: 00:57:51

None of the exchanges are going to admit that they've done it wrong.

janna scott: 00:57:54

The government, of course, is not gonna admit that, Hey, we should have let you

janna scott: 00:57:57

know that these products are not good and could maybe put something in place.

janna scott: 00:58:01

So what are we gonna do?

janna scott: 00:58:02

Right?

janna scott: 00:58:02

So my only recourse is get the software going, hopefully get as many people.

janna scott: 00:58:07

And that's what we're doing.

janna scott: 00:58:08

We're giving out, we're donating 125 to 200,000 licenses for our

janna scott: 00:58:14

product full audit support this year.

janna scott: 00:58:17

That's, like I said, didn't do it for money.

janna scott: 00:58:19

Wanna get it out?

janna scott: 00:58:20

Wanna get it as many CPA firms, accounting firms, because in our audit of the

janna scott: 00:58:25

53 so-called crypto tax expert firms, they simply asked for your data and ran

janna scott: 00:58:29

it through a hundred dollars program, but charged us 2000 to $3,000 for

janna scott: 00:58:33

transactions and then gave it back to us.

janna scott: 00:58:35

So again, there's nothing, no solution, right?

janna scott: 00:58:38

So I've built one and I stand behind it because if you get audited, we will.

janna scott: 00:58:43

We are, we're a group of tax attorneys, ea CPAs.

janna scott: 00:58:46

We can represent you all the way up to tax court.

janna scott: 00:58:49

We will go and ensure that the, that we prove to the IRS we're

janna scott: 00:58:53

right and you, and they're wrong.

janna scott: 00:58:55

And we will negotiate and we'll ensure that you get the

janna scott: 00:58:57

best outcome that you can.

janna scott: 00:59:00

We've done this for years and we'll fight because they knew the products, knew.

janna scott: 00:59:05

They just didn't care because everybody just cared about making a quick buck.

Tedd Huff: 00:59:08

Last question.

Tedd Huff: 00:59:10

If you were to give somebody who is not a crypto expert, not a digital assets

Tedd Huff: 00:59:18

expert, but is that digital asset curious person who may have bought $50

Tedd Huff: 00:59:27

of Bitcoin, may have bought an NFT of their favorite thing, what is it that

Tedd Huff: 00:59:35

you, what advice would you give them?

Tedd Huff: 00:59:37

And yeah, let's go there.

janna scott: 00:59:40

If, look, if you, in your lifetime, have bought or

janna scott: 00:59:44

held less than $20,000, I wouldn't be too worried about the audit,

janna scott: 00:59:51

but what I advise anybody to do.

janna scott: 00:59:55

Because that's one of the big things I have going on right now because we help a

janna scott: 00:59:58

lot of our users space because they forget which wallet they had, what they had.

janna scott: 01:00:03

I mean, I have so many wallets right now.

janna scott: 01:00:05

If I didn't have a spreadsheet, I wouldn't know what to do with it.

janna scott: 01:00:08

But track, keep track of your wallet addresses and logins, even for the

janna scott: 01:00:14

exchanges that are now discontinued in the US because we can still get into them.

janna scott: 01:00:20

Not into them like we can do traits, but into, through the

janna scott: 01:00:24

backend to pull your data.

janna scott: 01:00:26

'cause the key is that we have all of your data.

janna scott: 01:00:29

You wanna have a full picture.

janna scott: 01:00:31

If you don't have all of your data, the same thing that happens with the

janna scott: 01:00:34

10, 90, 90 A that's happening, right?

janna scott: 01:00:37

If you transfer things from other wallets and you have no longer have access to

janna scott: 01:00:42

it or you can't find it, they, and you only give them this one set, they're

janna scott: 01:00:46

gonna say, oh look, this was all income.

janna scott: 01:00:48

Let's say you transferred a hundred thousand dollars

janna scott: 01:00:50

Bitcoin from one to the next.

janna scott: 01:00:53

You just let it sit in the new exchange wallet wherever you had it, and you only

janna scott: 01:00:57

have that, they're gonna say, that's a hundred thousand dollars worth of income,

janna scott: 01:01:00

even though it wasn't, it was your own.

janna scott: 01:01:02

Right.

janna scott: 01:01:03

So you wanna ensure that you make a list, not necessarily the private keys.

janna scott: 01:01:08

We don't care about those.

janna scott: 01:01:08

I care about the public wallet addresses and your logins to your exchanges.

janna scott: 01:01:15

Track it.

janna scott: 01:01:16

It is only so scary right now because they're going

janna scott: 01:01:19

back and nobody is organized.

janna scott: 01:01:20

That's why we filled something that keeps you organized and we'll help you trace it.

janna scott: 01:01:24

We'll help you connect it, we'll help you get to where you need to go.

janna scott: 01:01:27

And like I said, we will pull it automatically, if you know for sure.

janna scott: 01:01:30

Oh, this is definitely a self transfer.

janna scott: 01:01:32

We can connect it just not on an exchange because exchanges work differently.

Tedd Huff: 01:01:36

So how would you say that in one sentence?

janna scott: 01:01:39

Oh God.

janna scott: 01:01:40

Keep track of your addresses and wallets and exchanges and logins.

janna scott: 01:01:44

That's it.

Tedd Huff: 01:01:45

How important is it to make sure that each movement

Tedd Huff: 01:01:50

is categorized properly?

janna scott: 01:01:52

Like I just said, one differentiating factor can cost you

janna scott: 01:01:56

a hundred thousand in additional taxable income, or 50 to a hundred

janna scott: 01:02:00

thousand dollars in additional capital gain, which is significant,

janna scott: 01:02:04

you know, at the tax rates.

Tedd Huff: 01:02:05

Jan, every time that I talk to you, it's like this eye-opening experience

Tedd Huff: 01:02:09

for me on, on so many different levels.

Tedd Huff: 01:02:12

Let me do just a quick recap of, of what we've talked about today.

Tedd Huff: 01:02:16

One, the crypto tax platform industry has been broken and you're bringing Defi Tax

Tedd Huff: 01:02:22

into really solve that fundamental flaw.

Tedd Huff: 01:02:26

What people think keeps them safe from these audits using popular platforms and

Tedd Huff: 01:02:30

all this stuff, just gives them a little bit of exposure that maybe they weren't

Tedd Huff: 01:02:35

expecting and really in some cases could be inadmissible as evidence to prove it.

Tedd Huff: 01:02:42

And the other thing that I think I took away from this too is that it's

Tedd Huff: 01:02:46

important to be working with groups.

Tedd Huff: 01:02:50

That, that have a collaborative approach that are working with the IRS, the

Tedd Huff: 01:02:55

SEC and other, other agencies to, to really support you and not just come

Tedd Huff: 01:03:03

from the perspective of move fast and break things, but more from the

Tedd Huff: 01:03:09

perspective of be diligent and be thoughtful in your movements so that

Tedd Huff: 01:03:14

you don't end up in the audit situation.

Tedd Huff: 01:03:17

And honestly, we're, we're at this cusp of this a massive shift.

janna scott: 01:03:22

Yeah.

Tedd Huff: 01:03:22

In crypto tax enforcement because it has become more mainstream

Tedd Huff: 01:03:28

and most people aren't prepared for it.

Tedd Huff: 01:03:31

Jana, before we wrap up, for someone who's listening, who's used

Tedd Huff: 01:03:36

one of the traditional crypto tax platforms, and after listening to

Tedd Huff: 01:03:40

this has decided, I'm panicking.

Tedd Huff: 01:03:42

What's the right thing that they should do right away?

janna scott: 01:03:45

So collect all your addresses, collect all your login,

janna scott: 01:03:49

select exchanges, even the ones that might not exist anymore, and then

janna scott: 01:03:53

go and look us up at Defi Tax us.

janna scott: 01:03:57

We are giving out free subscriptions right now because my goal is,

janna scott: 01:04:01

again, to get people into as many secure positions as possible.

janna scott: 01:04:09

The goal was never to make money, and that's, I guess my biggest

janna scott: 01:04:12

anger with these companies, with my competitors now is they literally

janna scott: 01:04:17

valued at billions of dollars.

janna scott: 01:04:18

They have the resources to fix it, yet they have not.

janna scott: 01:04:22

They haven't done anything since April since we sent out the letters.

janna scott: 01:04:25

Nothing has been changed, and so it's just disappointing because, and that would be

janna scott: 01:04:30

especially disappointed if I was some, I mean, I am somebody that paid them for the

janna scott: 01:04:33

subscription, but if I was somebody that paid even more, and you sit there and.

janna scott: 01:04:38

You just wasted so much of your money, which I mean might be one reason because

janna scott: 01:04:42

they don't wanna be liable, but they're, they have the resources to do it, do

janna scott: 01:04:46

something quicker, to do something right.

janna scott: 01:04:48

And they're not, you know, so get, you know, ensure that you have everything,

janna scott: 01:04:54

all the addresses, all the exchanges, keep track of them, and then you can go

janna scott: 01:04:58

visit us at Defi Tax us, and you can sign up right now for free, for the highest

janna scott: 01:05:03

level that goes down into the token level and get, you know, get going and go back

janna scott: 01:05:08

for all of the years that you've had it.

Tedd Huff: 01:05:09

Janet, thank you for not only just sharing your expertise,

Tedd Huff: 01:05:14

but your unvarnished perspective on where this industry really stands.

Tedd Huff: 01:05:20

And as Jana mentioned, for anyone who wants to join the Defi tax, I think

Tedd Huff: 01:05:24

it's a wait list still, is it not?

janna scott: 01:05:26

Nope.

janna scott: 01:05:26

It's open and ready to use.

Tedd Huff: 01:05:28

All right, well if you want to join and start using Defi Tax be, you

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can head right over to Defi Tax Us and go ahead and sign up for it and well, that's

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it for today's episode of Web3 with FTC.

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If this discussion caught your attention, there's a lot more ahead, so go ahead

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and hit follow on YouTube, Spotify, apple Podcasts, or wherever you

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listen to Stay plugged into everything happening here at FinTech Confidential.

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Go ahead and hit over to FinTech confidential.com

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and sign up there as well.

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That's where you're gonna get all the deep dives, the details on future episodes.

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And be sure to share this with someone who's serious about where fintech's going.

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And as always.

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Keep moving forward

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as we wrap up today's episode.

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I've got one last thing for you.

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If you are in the trenches fighting fraud and financial crime, you

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know it's a complex battlefield.

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That's where hawk's AI tools for real-time payment screening a ML

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These aren't just buzzwords.

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They're game changers.

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Designed to make your compliance more effective and less of a headache.

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Head on over to get Hawk ai.com to sign up for a demo and discover how

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their platform can revolutionize how you fight fraud and financial crime.

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Cryptocurrencies are highly volatile financial assets, so research and

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make your own financial decisions.