The Israel Tax Authority through its local braches countrywide has sent warning letters to people suspected to be engaging in bitcoin trading without reporting it. In the letters, the country’s tax agency is demanding that the recipients provide all the necessary information. This information includes current holdings and past transaction history.

The taxman is asking those involved in cryptocurrency businesses to list all the wallets and exchanges accounts they ever had in addition to reporting their earnings. The agency, in the letters is demanding that people discuss if they are involved in mining activities.

Business cases

The Israel Tax Authority seems to be confident that its suspicions are true. Some tax authorities have not even sent out letters but instead opened a business case for anyone suspected of engaging in bitcoin trading. The suspected people are being informed that they have to pay income taxes in the capacity of business owners. The tax authority has also asked the targeted people to fill reports, back dated from 2013 and maintain balanced books as well as report taxes from their employees.

The move comes after the tax authority earlier this year categorized bitcoin as an asset making those who trade in the currency liable to paying tax.

Monitoring Social Media Groups

It is not clear how the Tax Authority managed to compile the list of bitcoin traders in the whole country and check if they file their tax reports or not. However, there are many obvious ways. The country’s banking sector has been very hostile to the digital currency industry and the banks could have helped the tax agency in building the list. The banks may have reported all outbound and inbound transactions that involve accounts of exchanges abroad as possible tax evasion and money laundering.

According to people close and familiar with the developments, the agency had devised very creative ways. The sources have revealed that the agency has undercover agents who are routinely monitoring social media groups for selling and buying of bitcoin through social media groups. The information collected in these groups is compared with other pieces of information that the agency has.