If you invest in Bitcoin or some other form of a virtual currency, be aware that the IRS is expanding its enforcement actions and understand what your tax responsibilities are.
In our Exton PA office, we are seeing more taxpayers invest in Bit Coin or some other form of Virtual Currency. The IRS has also taken notice. Whereas our clients meet with us to discuss the proper reporting of gains (or losses) from their investments, the IRS focus is on taxpayers who may have willfully or non-willfully failed to report their taxable cryptocurrency and non-crypto virtual currencies.
What Is the IRS Doing?
IRS Commissioner Chuck Rettig stated that “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the laws and helping taxpayers fully understand and meet their obligations.”
The IRS, in its effort to identify taxpayers who may have unwillingly or willingly failed to report gains from their virtual currency transactions, will send 10,000 educational letters to cryptocurrency investors in August. These letters are not being sent at random to taxpayers, but the IRS has obtained the names of cryptocurrency investors through its ongoing compliance efforts and these letters target those individuals.
The IRS is asking taxpayers to review their tax filings and if currency transactions were omitted, to file amended past returns and pay the taxes, interest and penalties related to these unreported transactions.
IRS Letters Being Mailed – Is Action Required?
There are three variation of the educational letter (6173, 6174, and 6174-A).
Letters 6174 and 6174-A require no action from the taxpayer.
On the other hand, Letter 6173 alleges noncompliance and requires taxpayer action. If the taxpayer fails to respond to the Letter 6173, the IRS will likely examine that tax return.
Don’t Forget FBAR Requirements
If a taxpayer is investing in virtual currency abroad, additional filing requirements, such as the Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114, may be required.
Tax Planning Tip #1:
We recommend that all financial decisions be discussed with your tax professional before proceeding. It generally will result in a “Thank you for sharing that information with us, but there are no actions that need to be taken with respect to your planned situation.” On the other hand, if there are tax consequences, it is best to know them before proceeding rather than after the transaction has occurred.
Tax Planning Tip #2:
Taxpayers who pay vendors or others via Bitcoin or some other virtual currency, and taxpayers who invest in virtual currencies and sell or exchange those holdings, need to speak with an experienced tax professional to ensure compliance with the Code and IRS Regulations.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.
About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.