Recently, the IRS has made a PR push to let cryptocurrency traders know that letters are being sent to warn them to review the rules about tax reporting of cryptocurrency transactions. There are different variations of the letter but they are focused on encouraging tax compliance for cryptocurrency transactions. Whether you receive an actual letter or not is irrelevant. The message is loud and clear — the IRS is giving focused enforcement on cryptocurrency trading and has access to at least some data from some trading platforms. That is how taxpayers are being targeted for the letters. They are sending the notices only to people that have some sort of cryptocurrency.
According to the IRS, non-reporting of Cryptocurrency trading is an ongoing area of focus for IRS Criminal investigations. We help people with tax issues every day. An IRS Criminal investigation is not something you want to be on the other side of. You need to heed the warning and review whether you reported your cryptocurrency transactions. If you did not report them, you should consider amending your income tax return so that you rectify the situation versus waiting to see what may or may not happen. If you did report cryptocurrency transactions, you may want to double check that they are correct.
Over the past several years we’ve heard clients or potential clients try to make various unsuccessful arguments that they didn’t need to report cryptocurrency trading or that even though they had transactions they didn’t make money and that it was irrelevant. The misinformation that cryptocurrency trading transactions don’t need reporting is just that – false information. This common misconception is because it is so new and the IRS was a little slow to release any detailed guidelines on how it was going to be handle.
The IRS is coming after people that have cryptocurrency transactions. Traders need to be proactive to assess their potential exposure. If you’re still unsure what to do, feel free to reach out to us to discuss the specifics of your situation so that you don’t have any surprises down the road.
Caroline Montgomery, CPA (NC License Number 39017), MSA, is tax manager and partner of Adam Shay CPA, PLLC. The most rewarding part of what she does is helping business owners and individuals achieve their goals, all while working with a dynamic team that is growing quickly. The firm focuses on a proactive approach by encouraging clients to minimize taxes via income tax planning and projections, or by focusing on other areas of their business as part of the firm's Virtual CFO services. The firm also offers tax preparation, fraud and forensic accounting and tax issue resolution services. She moved to Wilmington in 2014 and started at the firm in 2015. Caroline graduated with her her undergraduate and graduate degree in 2010 from East Carolina University. She is actively involved with NourishNC as their Treasurer and enjoys volunteering with various organizations throughout New Hanover County. In her free time, Caroline enjoys spending time with her husband, Mike, and dog, Mason, as well as travelling and going to the beach.
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