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IRS Warns Taxpayers to Come Clean, Pay Taxes on Virtual Currency Transactions by Dustin Grizzle


Posted on September 10, 2019 by Dustin Grizzle

The IRS has begun sending warning letters to taxpayers who may have failed to report income and pay the resulting tax on gains from virtual currency transactions or who did not report those transactions properly.

Virtual currency, including Bitcoin, Ethereum and Ripple, has been an ongoing focus of IRS criminal investigation for the past few years. Although it does not have a tangible, physical form, the IRS treats it as a capital asset subject to capital gains tax rules, regardless of whether taxpayers use it as cash or legal tender to buy goods and services or as an investment they buy and sell for profit. Failure to pay taxes on cryptocurrency can result in penalties, interest on unpaid amounts and criminal prosecution.

There are three variations of the letters that the IRS is mailing to taxpayers this summer, all of which aim to help taxpayers understand their tax and filing obligations and how they may correct past errors. However, each letter varies depending on the severity of the alleged non-compliance and the steps taxpayers need to take to meet their filing and tax obligations:

Separately, the IRS noted that it will continue to enforce cryptocurrency compliance through taxpayer education, IRS audits and criminal investigations. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. If you receive an IRS letter, please contact the advisors and CPAs with Berkowitz Pollack Brant to help you respond appropriately and within the allotted time period.

About the Author: Dustin Grizzle is an associate director of Tax Services with Berkowitz Pollack Brant, where he provides tax-planning and compliance services to high-net-worth individuals and businesses in the manufacturing, real estate management and property investment industries. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.