The Internal Revenue Service has started sending letters to taxpayers with virtual currency transactions that may have failed to report income and pay the ensuing tax from these transactions or did not report these transactions properly.
Why Are The IRS Contacting Virtual Currency Owners?
The reasoning behind the IRS sending these letters is part of a larger effort on the agencies behalf to collect back taxes and receive amended returns. According to IRS Commissioner, Chuck Rettig, “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.”
Mr. Rettig also stated that increased use of data analytics will play a pivotal role in the increasing efforts involving virtual currency, and that the IRS is focused on enforcing the law and helping taxpayers fully understand meet their obligations.
What Kind of Letters Are Being Sent, and When Are They Sending Them?
The IRS started sending these letters to taxpayers mid-July. By the end of August, over 10,000 taxpayers will receive these letters.
For taxpayers receiving a letter, there are three variations:
All three versions aim to assist taxpayers in understanding their tax and filing obligations and how to amend previous mistakes. Information can be found on IRS.gov, including which forms and schedules to use and where to send.
IRS Continuous Efforts Regarding Virtual Currency
This is not the first time the IRS has made an effort to address tax non-compliance with virtual currency holders. Last year, the IRS announced a Virtual Currency Compliance campaign in order to combat said non-compliance by conducting outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing virtual currency related non-compliance through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.
Virtual Currency an Ongoing Focus Area for IRS Criminal Investigation
According to IRS Notice 2014-21, virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles is indeed apply to virtual currency transactions.
Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit feedback in education efforts and future guidance. The IRS anticipates issuing further legal guidance in this area soon.
Those who don’t report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.
Contact Us for Small Business Accounting in Raleigh
At Steward, Ingram, & Cooper, PLLC, our team is dedicated to helping businesses succeed in anyway we can. Whether you need assistance with accounting and bookkeeping, financial statement preparation and analysis, or navigating taxes and compliance, we’re here to help. Contact us today at 919-872-0866 to schedule an appointment for a consultation.