The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from those transactions or did not report them properly. This is yet another step in the IRS’ enforcement campaign against virtual currency.
The IRS started sending the educational letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The names of these taxpayers were obtained through various ongoing IRS compliance efforts, including the IRS’ successful summons enforcement against Coinbase, pursuant to which Coinbase released to the IRS the identifying information of approximately 13,000 exchange account holders.
As reported here, last year the IRS announced a Virtual Currency Compliance Campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. Since that time, the IRS has been extremely vocal about its commitment to addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations. To date, the IRS has offered guidance on tax consequences of virtual currency transactions in the form of a single IRS Notice issued in 2014, although the IRS has continually promised throughout 2019 that more guidance is coming this year.
"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.” For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A. All three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.
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