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IRS Urges Taxpayers Who Own Virtual Currency to Pay Back Taxes or File Amended Returns if Necessary

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The IRS recently began sending notices to certain taxpayers with records of virtual currency transactions of the need to review their tax filings, pay back taxes, interest, and penalties, or amend their tax returns. These letters are not limited to taxpayers who failed to report virtual currency-related income at all, but are also being sent to anyone who did not properly report such transactions. Failing to heed these notices could have dire consequences, so if you own virtual currency and want to ensure that you have met your tax obligations, please contact the experienced Florida unfiled taxes attorney Ronald Cutler for help with your case.

Tax Treatment of Virtual Currencies

Virtual currency is defined as a digital representation of value that functions as a medium of exchange. Currencies, such as Bitcoin, that have a value equivalent to that of real currency, are referred to as convertible virtual currency and are subject to taxes when sold, exchanged, or used to pay for goods and services. In fact, even holding virtual currency as an investment can result in tax debt. Because the IRS treats virtual currency as property, it requires taxpayers who receive this type of currency as payment to include its fair market value when calculating their gross income.

Potential Penalties

Taxpayers who count virtual currency as a part of their income could incur significant penalties for:

  • Underpaying taxes for virtual currency transactions; or
  • Failing to correctly or timely report virtual currency transactions.

In addition to monetary penalties and interest payments, taxpayers who find themselves in violation of federal tax law could even be subject to criminal prosecution. Fortunately, taxpayers who can prove that their underpayment or failure to properly report virtual currency transactions was due to reasonable cause, could qualify for penalty relief. For help determining whether you are eligible for a penalty waiver, please contact our legal team today.

Virtual Currency Compliance Notices

The IRS estimates that, by the beginning of September, more than 10,000 taxpayers will have received notice of their obligations in regards to virtual currency ownership. There are three main variations of these letters, which are referred to as:

  • Letter 6173;
  • Letter 6174; or
  • Letter 6174-A.

While these notices are slightly different, all three versions have the same goal, which is to assist taxpayers in understanding their filing obligations and directing them on how to correct past errors. All three versions also direct recipients to respond to the notice in one of a few different ways, including by:

  • Filing a delinquent return and reporting their virtual currency transactions as soon as possible;
  • Filing an amended tax return to account for virtual currency income; or
  • Sending a statement of facts explaining that they are in compliance with all tax and information reporting requirements related to their virtual currency accounts.

Please call our office today to learn more about responding to an IRS notice of noncompliance with virtual currency tax law.

Call Today for Help with Your Unfiled Taxes

If you received a notice from the IRS indicating that you failed to comply with the tax code regarding your virtual currency holdings, please call dedicated Florida unfixed taxes lawyer Ronald Cutler, P.A. at 386-490-9949 today for help with your case.

Resource:

irs.gov/pub/irs-drop/n-14-21.pdf