In perhaps a historic action, the IRS announced that by the end of this month it will contact more than 10,000 taxpayers with reminders of the federal income tax consequences of transactions involving virtual currencies. Taxpayers who the IRS believes have engaged in virtual currency transactions that may have given rise to unreported or improperly reported income tax liabilities are urged to review past tax filings, file amended, or delinquent returns if necessary, and pay any required back taxes, interest, and penalties due to prior failures to fully or accurately report income from transactions involving virtual currency. The IRS also advised that virtual currency is an ongoing area of focus for the agency’s Criminal Investigation division.
Described by the IRS in a July 26 news release as an “educational letter” for individual taxpayers, Letters 6173, 6174, and 6174-A are warning thousands of targeted individuals that the IRS has obtained “information” that the recipients may own or may have owned virtual currency that was not properly reported to the IRS as taxable income in connection with a transaction involving a virtual currency. The IRS advises that such virtual currencies may include either cryptocurrencies (i.e., virtual currencies used in conjunction with digital cryptography on a blockchain platform, including Bitcoin and Ether), or non-crypto virtual currencies. In the release, the IRS noted that it obtained the names of recipients of these letters through “various ongoing . . . compliance efforts,” and also referenced the agency’s increased use of data analytics in its enforcement […]
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