On July 26, 2019, the Internal Revenue Service (IRS) issued a press release notifying the public that the IRS has begun sending educational letters to taxpayers with “virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.” By the end of August, 10,000 taxpayers will have received one of these letters.
These letters will come in one of three forms—Letter 6173, Letter 6174, or Letter 6174-A—which span from a “soft letter” that merely informs a taxpayer of filing obligations, to a letter that requires an immediate taxpayer response to pending IRS action.
IRS Commissioner Chuck Rettig notes: “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties. 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.”
This initiative is part of the IRS’s Virtual Currency Compliance campaign, which is designed to address tax noncompliance related to the use of virtual currency and provide the public guidance on applicable regulations. In addition, the IRS Criminal Investigation Division has identified virtual currency as an enforcement priority.
Taxpayers who do not properly report the income tax consequences of such virtual currency transactions may be liable for tax, penalties and interest, and in some instances, may be the subject of a criminal prosecution. If you receive an IRS letter or have questions about reporting your virtual currency transactions, Aronson’s tax controversy team stands ready to provide guidance. Please contact Patrick Deane or Larry Rubin at 301.231.6200 to learn more.