IRS Has Begun Sending Letters to Virtual Currency Owners Advising Them to Pay Back Taxes, Files Amended Returns; Party of IRS’ Larger Efforts
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 virtual currency transactions or did not report their transactions properly. 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.
Virtual currency is an ongoing focus area for IRS Criminal Investigation.
Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution. More information on virtual currencies can be found on IRS.gov. See IR-2019-132, July 26, 2019.
U.S. taxpayers who have traded in virtual currency would be wise to seek the advice of competent tax counsel, who can evaluate the case, explain the options, and develop a defensible strategy.