If you made a fortune buying and selling cryptocurrencies or just casually made a few trades, the IRS wants to know about it. The IRS recently sent over 10,000 letters to taxpayers to remind them of the requirement to report virtual currency transactions.
These transactions should have been reported on your tax returns just like any regular stock transaction. The issue that many taxpayers have is that the transactions are not usually reported on a 1099 from your financial institution. In order to determine what needs to be reported on your return you will likely have to gather some information from outside parties.
The IRS sent three different letters to taxpayers (Letter 6173, 6174, and 6174-A). All three letters inform the taxpayer that the IRS has information that you have or had accounts containing virtual currency transactions and may not have met the reporting requirements. The letters are not reporting any specific transactions but request that you file a tax return if you did not or to file an amended return if you didn’t properly report the transactions. Depending upon the letter that you received, the IRS might also ask you to respond with a statement explaining the transactions that you reported and provide details of the trades.
The IRS is expected to issue further guidance on the topic in the coming months but these letters are a warning to taxpayers of the importance of reporting these transactions. If you received one of these letters or had any virtual currency transactions, Withum’s Tax Controversy Group can assist with reporting the transactions and work with the IRS on your behalf.