In a news release on July 26, 2019, the IRS announced that it was sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax. See IR-2019-132.
The announcement is an indication of increased IRS collection and enforcement activity in the area of virtual currency. The IRS recently received information about approximately 13,000 taxpayers with virtual currency transactions through a subpoena of the virtual currency exchange, Coinbase. The IRS expects to send letters to more than 10,000 taxpayers by the end of August.
For taxpayers receiving a letter from the IRS, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A. The IRS has previously released Notice 2014-21, which explains that the IRS treats virtual currency as property for federal tax purposes, and discusses the tax treatment of the sale or exchange of virtual currency and mining operations.
The news release also states that taxpayers who do not properly report the income tax consequences of virtual currency transactions may be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.
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