On July 26, the U.S. Internal Revenue Service (IRS) announced that the tax agency has started sending letters to American cryptocurrency owners advising them to pay their taxes. According to the organization, three types of letters will be sent to more than 10,000 taxpayers by the end of August. The news follows the recent IRS taskforce slide that shows alarming recommendations on how tax agents should investigate digital currency users.
Through Compliance Efforts the Internal Revenue Service Has Collected 10,000 Names
The IRS media room has published a press release explaining that the government tax agency plans to send letters to Americans who own digital currencies. The organization's announcement, published on Friday, says that the letters will be sent to taxpayers who have participated in virtual currency transactions or otherwise did not report past transactions properly. The IRS calls the letters of recommendation "educational" and started sending the notices last week. Through IRS "compliance efforts," the tax agency has obtained the names of more than 10,000 Americans who will receive this correspondence.
"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," IRS Commissioner Chuck Rettig explained. "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."
IRS Commissioner Charles Rettig warns that Americans who receive these letters need to take them seriously.
The Virtual Currency Compliance Campaign addresses individuals and businesses who don't comply with the U.S. tax code by using "multiple treatment streams." The IRS highlights that cryptocurrency compliance follows the "general tax principles applicable to all transactions in property." The initial testing grounds for the campaign begins with the Withholding & International Individual Compliance unit led by Director John Cardone.
Enforcement Campaigns and the Promised Issuance of Guidelines Concerning the Tax Treatment of Digital Assets
The news follows the recent enforcement campaign the tax agency started in order to combat noncompliance. Through "outreach" and taxpayer "examinations" the IRS started the campaign by issuing educational resources, "audits, and criminal investigations." The IRS recently announced that the tax agency would be issuing guidelines on the tax treatment of digital currencies. "[We] strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies," a group of bipartisan congressional leaders wrote to the IRS commissioner in September 2018.
"I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance," Rettig wrote responding to the request.
News.Bitcoin.com spoke with Node40 CTO, Sean Ryan, last June and he said the issuance of the new guidance is long overdue. "New guidance will be forthcoming and will address specifically the three most talked about uncertainties: acceptable methodology for calculating cost basis, an acceptable methodology for assignment cost basis (FIFO, Specific Identification, etc.), and treatment of forks," Ryan told our newsdesk. "I do believe it will be this year," he added.
Tax guidelines concerning the treatment of virtual currencies like bitcoin issued in Notice 2014-21..
Cracking Down on Noncompliance and the Tax Agency's Ongoing Focus
Furthermore, over the last couple of years, various three-letter agencies like the IRS, FBI, and others have been prosecuting a slew of Americans for illegal money transmission, particularly traders who utilize the Localbitcoins.com exchange.