The currency might be virtual, but the tax bills due the IRS for Bitcoin and other cryptocurrencies are very tangible. Recently, the Internal Revenue Service (IRS) sent letters to taxpayers engaged in virtual currency transactions. The notifications advise that traders potentially failed to report income and/or pay tax from their virtual currency transactions. Copies of the IRS notice can be found here: IRS Cryptocurrency Notice. This notice includes FAQs that taxpayers can read to hopefully answer some of their questions. The notice is sent with variations of an IRS letter: letter 6173, letter 6174, letter 6174-A.
The letter itself notes that “if you sold, exchanged, or disposed of virtual currency (e.g. Bitcoin, Ether), or used it to pay for goods or services, you have engaged in a reportable transaction.” Translation: You got this letter because the IRS is aware of your transactions and you might owe them.
NOTE: But, be careful. Scam letters are already being sent to taxpayers purporting to be from the IRS. See the CoinTelegraph article.
End of the Bitcoin Wild West?
In a virtual landscape on the frontiers of the internet, crypto traders often felt they were above or beyond the reach of the IRS. In this case, the call was coming from inside the house, as trading and storage platforms complied with IRS requests for user data. For example, Coinbase which facilitates transactions of virtual currencies like Bitcoin and Ethereum notified customers it will comply with the Court’s order regarding the release of certain data. For more information on the Coinbase case here.
Taxpayer information can be submitted to IRS through various continual IRS compliance efforts. Taxpayers who do not properly report their income and pay tax can be liable for tax, penalties, and interest. Also, said taxpayers may be subject to criminal prosecution. A tax lawyer can help you through this process.
As the IRS fences in the crypto Wild West, you are not alone to sort through their threats and red tape. If you failed to report virtual currencies/pay tax related to virtual currency transactions, a tax attorney can help. To get in compliance, and to help avoid trouble from the IRS, call the attorneys at Mendes Weed. We excel at tax law and especially at litigating tax cases before the IRS.
Call Mendes\Weed for Tax Law Advice
Businesses, families, and high net worth individuals trust Mendes Weed partner Christina Weed with their complex legal tax matters. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego. Ms. Weed also holds a Bachelors Degree in Accountancy. Christina has been designated a Board Certified Specialist in Taxation by the State Bar of California. This involves a rigorous testing and review process by the Bar, and only a small fraction of California attorneys receive this Board certification.