If you or someone you know has invested in virtual currency or has engaged in a virtual currency transaction, you could anticipate receiving a letter from the Internal Revenue Service (IRS).
These letters indicate that the IRS is advising taxpayers with virtual currency to pay back taxes due to failing to report income and not reporting transactions properly.
IRS Commissioner, Chuck Rettig, said that the IRS is expanding their effort to include virtual currency and that taxpayers receiving these letters should take them very seriously.
“We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations,” said Rettig.
The IRS began sending the letters urging taxpayers to review their tax filings during the week of July 15, 2019. By the end of August, more than 10,000 taxpayers will have received these letters.
If you’re a taxpayer receiving one of these letters, be advised that there are three variations of the letter being sent to help you understand your virtual currency filing obligations and how to correct your errors:
The IRS encourages you to go to their website, IRS.gov, that lists more information including which forms and schedules to use and where to send them once completed. However, we recommend that our clients review their draft responses with legal counsel before sending the response. What you say or don’t say may cause further issues with the IRS.
The IRS has been active in focusing on virtual currency and expanding their knowledge base about the subject. Last year the IRS announced a Virtual Currency Compliance campaign aimed at addressing noncompliance regarding virtual currency and taxes. They plan to continue these efforts through various methods such as taxpayer education, audits, criminal investigations and more. They also plan to offer additional legal guidance about tax and virtual currency in the near future.
IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions.
These letters are serious business. Taxpayers who do not report their virtual currency transactions may be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.
If you have received one of these notices or receive one in the future do not hesitate to call our tax attorneys here at McCarthy Lebit. We can help you properly navigate your options and give you the best advice on how to proceed.