Got Bitcoin? You may owe taxes on cryptocurrency transactions! Some cryptocurrency investors have received letters from the IRS this month announcing that their federal tax returns don’t match the information received from virtual currency exchanges. The letters acknowledge that trading exchanges, not the taxpayers, may have made the errors, however this signals that the IRS is beginning to seriously focus on cryptocurrency tax compliance. It is expected the agency will soon announce criminal tax evasion cases.
Cryptocurrency dealings from 2013 through 2017 are being scrutinized and Bitcoin enthusiasts should be aware of their tax obligations. We understand there were several versions of the letters; one informed recipients that they may have to file amended or delinquent returns, another gave recipients a deadline to respond in writing and disclose their “crypto” transactions. In most cases, where letters were sent, it was because the IRS received information from a third party through a form 1099-B that did not match information reported on a tax return. Taxpayers should be aware that the discrepancy might mean they will have to amend past returns and pay back taxes, interest and penalties. The IRS considers digital currencies, virtual cryptos, Bitcoin, and “Altcoins” like Ethereum or Litecoin, assets or property rather than currency which means the agency taxes crypto profits and losses like those for stocks, at capital gains rates. Further guidance should be forthcoming about how to record cryptocurrency transactions on tax returns.
CONTACT US: If you should receive one of the warning letters due to a mismatch between the trading profits or losses that were reported on your return, please contact us immediately for assistance. You may have failed to report income and pay the tax owed from virtual currency transactions, or did not report your transactions properly. Conversely, it may also mean you owe less tax due to a loss. Call toll free 855-534-2727, and one of our tax professionals will be happy to answer questions about your tax filings and review your tax obligations.
