The US Internal Revenue Service (IRS) is sending letters to taxpayers with “virtual currency transactions” to pay your taxes (or else!). For some time now, the IRS has required crypto exchanges such as Coinbase to share transaction details so there is no hiding from the tax agency.
IRS Notice 2014-21 (see below) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.
IRS Commissioner Chuck Rettig issued the following statement:
“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. 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.”
Beginning last week, the “educational letters” started to be mailed. By the end of August, the IRS states that more than 10,000 taxpayers will receive these letters.
The names of these taxpayers were obtained “through various ongoing IRS compliance efforts.”
For taxpayers receiving an educational letter, there are three variations:
- Letter 6173
- Letter 6174
- Letter 6174-A
All three versions “strive to help taxpayers understand their tax and filing obligations and how to correct past errors,” says the IRS.
Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.
In 2018, the IRS launched a “Virtual Currency Compliance campaign” to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS says it will remain actively engaged in addressing non-compliance related to virtual currency transactions.
Virtual currency is an ongoing focus area for IRS Criminal Investigation.
IRS Notice 2014-21 (PDF) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.
The IRS anticipates issuing additional legal guidance in this area in the near future.
Taxpayers who do not pay their taxes could be subject to criminal prosecution.