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10K cryptocurrency owners to get IRS tax payment letters

Bitcoin batch (2)

Bitcoin and other virtual currencies fascinate me, but that's as far as it goes.

I don't own and have never had any interest in cryptocurrencies. I'm basically a say it with cash kind of gal.

Part of my crypto trepidation is that I've yet to grasp how Bitcoin is mined, despite the hubby's patient, and repeated, explanations.

And like many Senators during a recent hearing on Facebook's proposed Libra digital money, I'm skeptical of the concept (as well as suspicious of the online social media platform proposing it, but that's another blog post).

My disavowal of cryptocurrency, however, has been a good move for me as far as taxes are concerned. It's one less thing to worry about at filing time since the Internal Revenue Service years ago declared that digital currency transactions are taxable.

Basically, Uncle Sam considers cryptocurrency an asset like stocks or other property you own. The sale of those assets that results in a profit triggers, in most cases, taxable capital gains.

And now the federal tax collector has launched a concerted effort to get the taxes it says are due from Bitcoin et al owners.

Three letters to 10K taxpayers: The IRS is 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.

By the end of August, the IRS says more than 10,000 taxpayers will receive the letters.

Recipient taxpayer names, notes the tax agency, were obtained through various ongoing IRS compliance efforts.

If you're among the taxpayers the IRS is encouraging to pay up, you'll get one of three cryptocurrency tax letter variations: Letter 6173, Letter 6174 or Letter 6174-A (click the names to see PDF versions).

All three versions not only ask for payment, but also are designed, says the IRS, to help taxpayers understand their tax and filing obligations and how to correct past errors.

Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.

Crypto tax cheat sheet: Last year, the agency announced a virtual currency compliance campaign to address tax noncompliance in this area. It includes outreach and examinations of taxpayers.

You can find details on the taxability of cryptocurrency in the IRS' Notice 2014-21 from, as the name indicates, five years ago. It's in a questions and answers format and if you're facing taxes on virtual dollars, check it out.

For a quicker overview, I suggest tax attorney Shaun Hunley's tax cheat sheet for Bitcoin owners.

Crypto tax collection goes beyond letters: The letters are just the latest in the IRS' effort to collect due tax on cryptocurrency.

The IRS says it will remain actively engaged in its variety of efforts to collect the correct tax on virtual currency transactions, ranging from taxpayer education to audits to criminal investigations.

Yes, cyber money fans, your currency of choice is an ongoing focus area for IRS cops, the agency's Criminal Investigation unit.

So that your case doesn't end up as the target of today's Eliot Ness and crew, follow the directions in any cryptocurrency tax letter you get.

You also probably should talk with a tax professional who's trained and experienced in the area.

"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 in announcing the compliance effort.

"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," added Rettig.

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Comments

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GW Kay

Hi,

Most of the country in the world banned the crypto currency transaction. How use this currency normal people

Rolo

You can also check out https://koinly.io if you need to report your crypto taxes, it makes it deead simple to generate the reports. Just sync your wallets and let it generate form 8949 with your gains. Better late than sorry.

Susan Dyers

Wow what a nightmare to calculate this by hand! ... I'm glad that I was able to use CoinTracker to do this for me or else I would have been totally stuck.

Do you have any suggestions for me if I receive these letters?

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