U.S. tax authority, the Internal Revenue Service (IRS) has already begun sending letters to thousands of bitcoin and crypto holders who have failed to report cryptocurrency transactions. The IRS letters include instructions to pay taxes, interest, and penalties.
IRS: Review Tax Filings to “amend past returns and pay back taxes, interest, and penalties.”
The IRS started sending educational letters to taxpayers in mid-July 2019. The agency estimates that by the end of August 2019, more than 10,000 taxpayers will receive these letters.
On July 26, 2019, IRS through Statement R-2019-132 informs about the letter campaign. In it, IRS Commissioner Chuck Rettig said,
“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.”
Rettig also warned bitcoin and cryptocurrency users that the IRS is enhancing its campaign to address non-tax compliance, particularly those involving crypto transactions. He remarked,
“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.”
IRS Requested Coinbase To Release Data on U.S. Customers
Moreover, the tax collection agency indicated that the names of these taxpayers holding cryptocurrencies were obtained through several ongoing agency compliance efforts.
In this connection, as Bitcoinist reported earlier, since 2017, the IRS has been requesting Coinbase, the biggest Bitcoin exchange in the U. S., to release information about over 14,000 customers who are U.S. citizen taxpayers.
The IRS has said that it considers cryptocurrencies such as Bitcoin property for federal tax purposes, meaning any profits or losses from their sale should generally be reported as capital gains or losses.
Thus, purchasing Bitcoin is not a taxable event. However, paying with the cryptocurrency to buy something else is a sale of Bitcoin, similar to the sale of a property. Therefore, it is a taxable event. The IRS notice IR-2018-71, issued on March 23, 2018, specifies,
“Virtual currency transactions are taxable by law, just like transactions in any other property.”
“Taxpayers Could be Subject to Criminal Prosecution”
Indeed, the IRS announcement underlines that the ongoing virtual currency campaign is considered a focus area for IRS Criminal Investigation. The IRS statement warns,
“Taxpayers who do not properly 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.”
Do you think the ongoing IRS campaign on crypto taxes will impact Bitcoin’s value? Let us know in the comments below!