According to the IRS, virtual currency is “a digital representation of value that functions as a medium of exchange…” However, it does not have legal tender status in any jurisdiction of the United States. Virtual currency is used similarly to conventional currency, accepted as a medium of exchange in the issuing country. As this area is rapidly changing, the Internal Revenue Service has issued guidance for taxpayers who transact business using virtual currency.
Notice 2014-21 attempted to explain and clarify the application of general tax principles to the most common transactions involving virtual currency. Expanding on the guidance issued in Notice 2014-21, the IRS issued additional details in Revenue Ruling 2019-24 to help taxpayers comprehend their reporting obligations for specific virtual currency transactions. Revenue Ruling 2019-24 covers the tax treatment of a cryptocurrency hard fork, while answers to FAQs address transactions where virtual currency is held as a capital asset.
The IRS notes that some taxpayers engaging in virtual currency transactions may have failed to report these transactions properly and, thus, failed to report income and pay the corresponding tax. Through taxpayer education, audits, solicitation of public opinion, and even criminal investigations, the IRS is actively addressing potential non-compliance. In the summer of 2019, the IRS began mailing educational letters to more than 10,000 taxpayers who either failed to report virtual currency transactions or reported them incorrectly.
“The IRS is committed to helping taxpayers understand their tax obligations in this emerging area,” said IRS Commissioner Chuck Rettig. “The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.”
Taxpayers who improperly reported transactions involving virtual currency or failed to report them at all may be liable for tax, penalties, interest, and, in some cases, subject to criminal prosecution. THE TAX EXPERTS at the Thorgood Law Firm may provide valuable assistance to any taxpayer engaging in this new and rapidly evolving area of commerce. We can help any taxpayer understand the requirements related to correctly reporting income where virtual currency is used as the medium of exchange.
If you live in the New York or the Tri-State area and have any questions about any tax-related issues, including taxation and virtual currency transactions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
