The U.S. Internal Revenue Service (IRS) has requested that taxpayers begin reporting any capital gains made on transactions involving cryptocurrencies.
On July 26, 2019, the American tax collection agency revealed it has begun sending notices to cryptocurrency holders, requesting that they pay all taxes they might owe or file updated tax returns that reflect their earnings made from digital assets.
IRS Is Mailing Educational Letters, Tax Notices to Crypto Investors
According to a news bulletin, the IRS began mailing educational letters to taxpayers last week. There are reportedly three different types of notices being sent to US-based crypto investors.
Per the tax collection agency, it plans to send letters to over 10,000 taxpayers by the end of this month. IRS’s representatives noted that the names of the individuals receiving the notices were obtained through ongoing “compliance efforts.”
IRS commissioner Chuck Rettig stated: “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 Has Been Preparing Crypto Tax Guidelines Since 2014
Rettig added that the tax agency was expanding its efforts involving “virtual currency” including extensive use of advanced data analytics. He also mentioned that the IRS remains focused on enforcing tax reporting guidelines and helping crypto investors understand and comply with the relevant policies.
In May 2019, the IRS had reportedly begun working on new guidelines for individuals involved in crypto-related businesses. Notably, the American tax agency has been monitoring cryptocurrency transactions since 2014 – in order to collect taxes on capital gains.
Crypto industry participants and various organizations have requested that the IRS update its guidelines after the agency classified cryptocurrencies as a type of “intangible” property for tax collection purposes.
“Future Civil and Criminal Enforcement” Actions May Be Taken
On July 25, 2019, a Redditor revealed that he had received a notice from the IRS stating that all crypto transactions must be reported. Tyson Cross, a tax attorney and founder of Cross Law Group, confirmed that the IRS has been sending Letter 6174-A which notes that “future civil and criminal enforcement” actions might be taken in cases where crypto investors fail to accurately report their earnings from digital assets.
Earlier this month, the IRS noted (during a cyber training program) that it was considering subpoenaing giant tech firms like Apple, Google, and Microsoft. The American tax agency stated: “Issuance of a Grand Jury Subpoena should be considered for Apple, Google, and Microsoft for the Subject’s complete application download history.”
Prepared by James Daniels, the program manager and special agent at IRS’ Criminal Investigation Unit, IRS’s presentation recommended: “Each application’s function should be explored to determine whether or not the application can transmit, or otherwise allow, transactions in bitcoin.”
Monitoring Social Media Accounts for Crypto-related Activity
Justin Cole, director of communication and education at IRS’ Criminal Investigation Unit, said that the crypto-related presentation was given to the agency’s employees at a World Bank event in Washington D.C.
The IRS also intends to monitor taxpayers’ social media accounts, in order to determine whether they might be conducting cryptocurrency transactions. To examine crypto-related activity more carefully, the agency recommends:
“A Grand Jury Subpoena should also be considered for (and may already have been obtained during the normal course of the investigation) the Subject’s financial accounts, including, but not limited to, the Subject’s bank, credit card, and PayPal records.”