On Friday, the IRS announced that it would begin the process of sending out written warnings and letter notifications to known cryptocurrency owners, traders, and investors. Though these letters are not formal requests for payment, they should be taken seriously by anyone who trades or profits from cryptocurrency. The IRS has warned traders and investors in the past of the consequences of not properly reporting gains on cryptocurrency.
If you receive a letter from the IRS, you should know that they have associated you with trading or engaging in activities that you may have profited from. You are not automatically obliged to pay the IRS just because you have received a letter, but it would be a good idea to make sure that your records and reported income figures are correct and you are current with the IRS.
These educational letters serve as a reminder that the IRS is competent and aware when it comes to issues involving cryptocurrency and the economy that surrounds the industry. Though the stance of the IRS when it comes to cryptocurrency has been murky at best in the past, their policy is becoming more clear as time goes on and they issue more guidance and policy on the issue of cryptocurrency and taxed income.
In a statement, IRS Commissioner Chuck Rettig touched on the educational letters being sent out: “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.”
This action by the IRS comes not too far behind the decision to order Coinbase to hand over the information of thousands of individuals known to be trading and transacting virtual currencies. While this step by the IRS is somewhat of a step towards more clarity on the policy of cryptocurrency in US tax law, there are an increasing number of calls for the IRS to issue more clear guidance on how to handle virtual currencies in taxes.