In July, the IRS released a statement that thousands of taxpayers who had previously invested in online currencies (also known as Cryptocurrency) will begin receiving letters advising them to pay taxes on their investments.
The reason? While Cryptocurrency was mostly untraceable for years due to the buying and trading of coins as virtual currency, the IRS has begun cracking down on those evading paying taxes on the earnings from these internet transactions. The IRS contends that most taxpayers don’t withhold the proper taxes or claim earnings on these trades and buy-ins of virtual currency. The IRS is now treating cryptocurrency just like any other type of investment or form of payment and instructs taxpayers to document all transactions in detail to avoid severe penalties.
“Taxpayers should take these [warnings] 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.”