On July 26, 2019, the Internal Revenue Service (IRS) announced that it has begun to issue warning letters to taxpayers suspected of failing to meet their reporting or payment obligations for transactions involving virtual currency (including cryptocurrencies, such as Bitcoin, and non-cryptocurrencies). These “educational letters” caution taxpayers of their obligation to report all sales, exchanges, or other dispositions of virtual currency, and to pay any resulting tax. Taxpayers who failed to properly report virtual currency transactions are encouraged to correct their errors by filing amended returns (or original returns, if they are unfiled) or risk enforcement by the IRS.
These warning letters are part of the IRS’s ongoing Virtual Currency Compliance Campaign, under which the IRS is actively pursuing non-compliance related to virtual currency transactions. Virtual Currency Compliance has been identified as a high priority for IRS examination and enforcement, including criminal investigation. By the end of August 2019, the IRS intends to send these warning letters to more than 10,000 taxpayers identified as potentially non-compliant with their reporting and paying obligations.
Taxpayers who fail to properly report virtual currency transactions or to pay related taxes may be liable for additional tax, penalties, and interest. Further, they are at elevated risk for criminal prosecution. If you have unreported or misreported virtual currency transactions, contact the Dually Licensed Attorney-CPA’s at Daniel Rosefelt & Associates right away to review your legal options.