The masses of folks that have invested in the cryptocurrency and virtual currency markets, including BitCoin, should know the IRS will be coming to their mailbox soon. Last week, the IRS began sending letters to taxpayers with cryptocurrency transactions.
The letters target those who potentially failed to report income, pay resulting taxes, or did not report the transactions properly.
“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”
Cryptocurrency Traders Better Check That Mailbox!
The letters sent out are purely educational, as cryptocurrency investment has skyrocketed in recent years. The IRS says more than 10,000 individual taxpayers will receive these letters. Taxpayers were identified through various ongoing IRS compliance efforts.
The educational IRS letters have three variations: Letter 6173, Letter 6174 or Letter 6174-A. All three versions attempt to help taxpayers understand their tax filing obligations and how to correct past errors.
On the letters, taxpayers are pointed to appropriate information on www.irs.gov. The letters include a list of forms and schedules to use and where to send them.
A New Virtual Currency Compliance Program
The letters are the first all-encompassing initiative of the Virtual Currency Compliance campaign announced last year. The new campaign attempts to address tax noncompliance in the area of virtual currencies. Cryptocurrency is an ongoing focus area for IRS Criminal Investigation.
The IRS treats virtual currency or cryptocurrency as property for federal tax purposes. The Service provides guidance on this topic in Notice 2014-21 (full text PDF here). This notice includes information on how federal tax principles apply to virtual currency transactions. Additionally, compliance efforts follow these general tax principles. The IRS will continue to solicit taxpayer and practitioner feedback in education efforts and future guidance.
What Does the Future of Cryptocurrency Taxation Hold?
Looking toward the future, The IRS anticipates issuing additional legal guidance in this area. Taxpayers who do not properly report the income tax consequences of virtual currency transactions are liable for tax, penalties and interest.
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