Cryptocurrency Caught in IRS Crosshairs
Since Bitcoin’s emergence in 2009, the cryptocurrency market has grown to over 4,000 variations of the virtual currency. With the government erring on the side of caution regarding the medium of exchange, different agencies have had to figure out how to regulate it as well. In recent news, the IRS has made efforts to improve compliance by sending letters to over 10,000 individuals who failed to file or filed incorrectly tax returns related to their use of virtual currency.
After receiving a letter, tax payers will have a chance to assess their errors and submit or amend their returns. The three types of letters are Letter 6173, 6174, and 6174 -A with the message included determined by information and research collected by the IRS through multiple channels.
Letter 6173 states you “may not have met your U.S tax filing and reporting requirements for transactions involving virtual currency” meaning the IRS has evidence you failed to report or didn’t file a return. Recipients must amend or submit returns, or they must respond with an explanation of their actions signed and “declared under penalty of perjury.”
Letter 6174 says the IRS believes “you may not know the requirements for reporting transactions involving virtual currency” meaning they don’t have definitive proof but think that a mistake may have been made. The letter is intended to be educational so recipients should examine their returns for violations, but a response is technically not required.
Letter 6174-A states you have an account that “may not have properly reported your transactions involving virtual currency” meaning you may have reported related transactions, but they were filed incorrectly. Individuals could have used the wrong schedule or form to classify the related business, so the IRS believes their tax filings need to be reviewed for accuracy.
Even if you’re not one of the thousands to receive one of these letters, the IRS still suggests reviewing your returns if you have used virtual currency in the past. Fixing reporting mistakes is seen positively in the eyes of the IRS and will help you avoid worse penalties or investigations in the long run. Considering the agency launched a campaign regarding Virtual Currency Compliance last year, their investigators won’t be passive in handling these tax matters.
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