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NextGen Magazine

 
 

IRS Reminds Taxpayers They Must Report Cryptocurrency Gains

By:
Chris Gaetano
Published Date:
Mar 26, 2018
IRS

The IRS reminded taxpayers that any gains from cryptocurrency investments count as income and must be reported. The reminder comes shortly after it won a court case that forced a major exchange to hand over the personal data of its users. It said that those who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest. In more extreme cases, they might even be subject to criminal prosecution. 

The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency. Notice 2014-21 provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. 

The IRS made their announcement a few weeks after Coinbase, a major exchange that enables people to convert sovereign currency to cryptocurreny and back again, told users that it was handing over the information of approximately 13,000 customers to the IRS. Some cryptocurrency investors are already getting negative attention from the IRS, including one Reddit user who says that they now owe $50,000 that they say they do not have. Others are worried that the same will soon happen to them. Another Reddit user highly recommends that if someone makes gains from cryptocurrencies that they hire a CPA, and implies that many cryptocurrency users don't understand tax law and underestimate the power of the IRS.