The IRS Is Watching Cryptocurrency Traders
Does the IRS tax cryptocurrency? Yes, they DO. And if you trade in cryptocurrency, don’t lie to the IRS about it–or ignore their communication with you regarding such cryptocurrency issues.
That’s the latest word from a variety of sources including the Internal Revenue Service itself, which reminds traders, “Virtual currency transactions are taxable by law just like transactions in any other property. Taxpayers transacting in virtual currency may have to report those transactions on their tax returns.”
You read that correctly, consumers are being advised that when the IRS chooses to tax cryptocurrency, they do so with an eye on extra scrutiny on those perceived to be flaunting the rules.
Bitcoin.com published an article in August of 2020 noting that the Internal Revenue Service has sent a round of letters to some ten thousand owners of cryptocurrency including Bitcoin, Ethereum, etc. The letters are a combination of a warning and reminders to meet the IRS deadline for responding.
Three IRS Communications Regarding Crypto
These letters may be one of three types, the first being the issuance of a “drop-dead date” for responding to the IRS about cryptocurrency which, it should be noted, is viewed by the federal government as PROPERTY.
Such letters include verbiage such as this one from the IRS official site. “We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”
The letter referenced above will include a date by which affected taxpayers must respond or risk having their tax accounts given further scrutiny. Two other types of crypto-related IRS letters serve as reminders, rather than calls to new action.
A Bit Of Controversy?
And the move is not without protest–at least one entity holds that these letters are a violation of taxpayer rights. How that all plays out (if indeed the IRS move to tax cryptocurrency and/or remind those affected is challenged in court) remains to be seen. Even so, if you receive one of these letters addressing cryptocurrency holdings, it’s a TERRIBLE idea to ignore it or not give it the attention it is due.
And while we’re on the subject, what specifically does the IRS define as cryptocurrency or virtual currency?
According to the official site, “Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency (i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance)” adding that virtual currency does not function as legal tender status in any jurisdiction”.