Updated, 8/19/19, 7:20am PT: CoinDesk reported that cryptocurrency traders have received letters from the IRS saying they misreported their revenues on previous tax filings. The agency seems to have shifted its tone from "you may have misreported your earnings," which encourages crypto owners to double-check their statements, to the definitive "you misreported your earnings." That means the agency is confident enough to tell people exactly how much they owe from previous tax years--and to charge interest on those unpaid taxes.
The notices are reportedly being sent via CP2000 letters that essentially say the figures reported by some citizens' financial institutions differ from what the citizens themselves reported on their taxes. People who receive such letters have 30 days to respond--even if only to say they can't afford to pay. (The IRS also works out payment plans with people who can't pay the lump sum.) These efforts drive home the fact that the IRS won't be content with cryptocurrency traders profiting off virtual currencies without giving the U.S. a cut.
Original article, 7/27/19, 11:48am PT:
Cryptocurrency traders might want to double-check their tax returns. The IRS said on Friday that it sent "educational letters" to more than 10,000 people who "potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly."
Some people are drawn to cryptocurrency because it's supposed to be anonymous. That's part of the reason why ransomware often demands payment in cryptocurrency--the transactions are harder to trace than a traditional money transfer would be. It's not impossible to figure out who was involved in a cryptocurrency transaction, though, and the IRS said it's become increasingly interested in making sure people accurately report their incomes.
"The IRS is expanding our efforts involving virtual currency, including increased use of data analytics," IRS Commissioner Chuck Rettig said on Friday. "We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations." Put another way: Uncle Sam's more interested than ever in making sure it gets its cut of cryptocurrency transactions. The days of being able to keep these payments hush-hush are numbered.
The U.S. isn't the only country subjecting cryptocurrency to greater scrutiny. India has considered a 10-year jail sentence for anyone caught mining, holding, buying, or selling any cryptocurrency, and China's also mulled regulations that would prevent its citizens from using cryptocurrency. Similar regulations are unlikely to appear in America, but the IRS has made it clear that it's not going to turn a blind eye to cryptocurrencies, either.
"Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest," the IRS said on Friday. "In some cases, taxpayers could be subject to criminal prosecution." More information about how the IRS handles cryptocurrency is available via the agency's website; the agency said it expects to issue "additional legal guidance in this area in the near future."
