Taxpayers who exchange cryptocurrency may receive a letter this month from the IRS regarding reporting issues.
Due to the increase in popularity of cryptocurrency, the IRS is drawing its attention to taxpayers who may not accurately report or fail to report income and not pay taxes related to those transactions.
The IRS began sending out over 10,000 letters last month, as it works to expand its compliance efforts on virtual currency.
Data information from over 13,000 bitcoin users may have been obtained from a 2017 court case where the IRS was granted access to account data from the bitcoin exchange, Coinbase. While bitcoin itself allows anonymity and privacy among its holders, wallets and exchanges like Coinbase require personal identification in order to open an account and buy or sell bitcoin.
The IRS letter could arrive in one of three variations, and it may outline several different next steps depending on which letter is received. Taxpayers must respond to those steps in order to stay in compliance with federal law.
Ever since a 2014 IRS campaign issued guidance to taxpayers communicating that capital gains rules apply to any sales of cryptocurrency traded like securities, the IRS has continued to step up its efforts in seeking compliance. To date, many taxpayers remain out of compliance on reporting income of virtual currency, so the IRS plans to remain vigilant in this area through a variety of efforts, starting with the letters this month.
Please contact your advisor at (805) 963-7811 if you have any questions on cryptocurrency or how to stay in compliance.