The IRS is Cracking Down on Virtual Currency

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The IRS is Cracking Down on Virtual Currency

Once again the IRS is advising all taxpayers who have invested in online currencies (also known as cryptocurrency) to claim and pay taxes on their earnings or claim their losses. In 2014, when virtual currencies began to make their debut across the globe, the IRS began cracking down on those taxpayers who were choosing to invest their hard-earned dollars in virtual funds. The issue? For years, the IRS couldn’t track, trace, or pinpoint exact dollar amounts that were being invested in companies, and therefore taxpayers were escaping taxation. An even bigger issue arose when they realized that investors could buy, sell, and trade these currencies, all without paying income tax. Obviously that’s a  huge “no-no” in the eyes of the IRS.

Five years later, the IRS has dedicated a task force to help taxpayers understand how and why not paying income tax on their cryptocurrency transactions could lead to hefty fines, and in some cases, even criminal charges. The IRS has outlined basic tax laws for dealing with virtual currencies as property, and the general tax principles that apply to property taxes now apply to cryptocurrency as well.

Becaise the IRS is well aware that not all taxpayers will actually report their investments and risk incurring additional taxes, the IRS is continuously addressing the issue, including non-compliance penalties, education about online Investments, audits, and in some cases, criminal investigations. The IRS has issued guidelines for taxpayers who have not reported their transactions involving virtual currencies or who have reported them inaccurately. Taxpayers falling under the IRS’s watchful eye may be held accountable for back taxes owed, interest, penalties, and in the worst cases, criminal prosecution, and jail time.

The world of online investments can be tricky. Should you find yourself with questions or concerns, or if you need assistance addressing how to properly file and claim your investments, contact our trained staff at the Law Offices of Christy Lee, P.C. so we can handle the matter for you.

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Christy Lee

Christy Lee routinely writes about changes in tax law and current tax issues.