The IRS has announced that they are sending out more than 10,000 letters to holders of cryptocurrency.
The IRS has secured information through various compliance efforts, including the use of John Doe summonses to virtual wallet providers and others of individuals utilizing cryptocurrency. The letters appear targeted to individuals that did not have the cryptocurrency transactions reflected on their respective tax returns.
The limited IRS guidance published to date says gains or losses from cryptocurrency trading must be reported consistent with any other sale or exchange of property. More guidance is expected to calculate basis, among other conditions.
IRS Commissioner Chuck Rettig encouraged taxpayers receiving letters and other taxpayers with cryptocurrency transactions to take the letters seriously. The potential sanctions for failure to properly report cryptocurrency transactions can run the proverbial gamut from back taxes, civil penalties and interest to criminal prosecution involving incarceration, fines and the loss of various privileges as a convicted felon.
The IRS has repeatedly announced that enforcement of overseas and cryptocurrency matters is a top priority. The enforcement effort is also very popular with lawmakers on both sides of the aisle.