At end of July, the Internal Revenue Service (IRS) issued a news release stating that it will be issuing letters to taxpayers that have potentially not reported their cryptocurrency activity for past years. This action falls in line with the IRS’s stance to start cracking down on cryptocurrency holders and the under reporting of taxable transactions. Specifically the IRS has the stance that for tax purposes, it will treat cryptocurrency in the same manner as stocks, bonds, securities, or any other capital assets. This means that whenever you sell your cryptocurrency and/or exchange it for any type of cryptocurrency, you have triggered a taxable transaction in the eyes of the IRS.
With this in mind, the letters that the IRS are sending out are meant to capture all of these transactions. By the end of August 2019, the IRS plans to mail out over 10,000 of these letters to cryptocurrency holders. Specifically there are three types of letters the IRS are going to send out, and each type of letter has information and various steps the taxpayer can take in order to stay in compliance. The three types that will be sent out are as follows: letter 6173, letter 6174, and letter 6174-A.
Letter 6173 is the sternest of the letters as it requires taxpayers to sign and attest to the fact that they properly reported all their cryptocurrency transactions during a given tax year. Letters 6174 and 6174-A are more informative in nature, and only provide information to the taxpayer on how to properly record cryptocurrency transactions. All of the letters give the taxpayer guidance on the steps necessary in order to be in proper compliance with reporting these type of transactions. Needless to say if a taxpayer receives one of these letters, then there is a reason why the IRS sent it to them. Starting in 2018, the IRS required some of the larger cryptocurrency banks to report to them data on various account holders. So it would follow suit that these letters come in response to this information. If you are one of the taxpayers that ends up receiving these letters, it is imperative that you consider the ramifications to responding or not responding to these letters. However, please note that this decision does not need to be made solely by you. Our firm has experience in dealing with cryptocurrency and as such is fully able to help with this sort of decision making. Depending on your situation, we can communicate with you regarding the next best steps so as to put your mind at ease and to avoid any future problems with the IRS. If you would like to know more, please feel free to reach out to us and we would be more than happy to help. If you would like to see examples of the letters that are to be sent off and the original IRS news release, please follow the link below.