IRS Warns Cryptocurrency Investors That They May Owe Tax Money
The Internal Revenue Service announced on July 26 that it has begun sending letters to taxpayers with virtual currency (also known as cryptocurrency) transactions who potentially failed to report income on them and pay the resulting tax, and/or did not report their transactions properly.
The agency, which plans to reach more than 10,000 cryptocurrency investors by the end of August 2019, says it began notifying these taxpayers the week of July 15.
“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,” IRS Commissioner Chuck Rettig said in a statement. “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.”
The IRS noted that the warning letter recipients had their names provided via “various ongoing IRS compliance efforts,” and that “virtual currency is an ongoing focus area for IRS Criminal Investigation.”
“The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations,” the agency said in its news release.
To read the full IRS news release, click here.
IRS Guidance on Cryptocurrency Tax Issues Expected Soon
The IRS may release guidance on virtual currency tax issues within the next few months, according to IRS Commissioner Charles Retting. Speaking at the Federal Bar Association Insurance Tax Seminar in Washington on May 30, Rettig added that the guidance will include a revenue ruling and a revenue procedure, and that “it’s going to be helpful for people who might be guessing at ways that digital assets might be nontaxable.”
The coming guidance is being issued as part of an effort to make virtual currencies more visible, he said. Rettig’s comments came just after he wrote in a May 16 letter to Rep. Tom Emmer (R-Minn.) that the IRS plans to issue guidance on acceptable methods for calculating cost basis and of cost basis assignment, the tax treatment of forks, as well as on other tax issues. This new information will add considerable guidance on virtual currencies, as the agency has to date only issued Notice 2014-21, 2014-16 IRB 938, which says that these currencies are considered property.
Click here for GT’s full Blockchain & Cryptocurrency Spring/Summer 2019 Newsletter.