IRS Targeting Taxpayers for Misreporting Digital Currency Transactions
- Taxpayer sending notices since June 2019
- No need to panic
“We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency,” is what the letter IRS is sending to cryptocurrency investors says.
One such crypto investor shared how he received a letter from the IRS that “accuse” him of “breaking the law” deposit him paying all the taxes that he was supposed to on his crypto investment.
The letters IRS is sending out involves:
- 6174 – This is a soft notice informing the taxpayer of the likelihood of them not reporting their digital currency transactions. It asks them to check their returns, and if necessary, file a return to correct the misreporting.
- 6174-A: This notice tells the taxpayer that there is a potential misreporting and that IRS may follow-up with future enforcement action. It doesn’t require a response if the taxpayer believes that he is in compliance.
“It's much more likely that the IRS is sending this letter to all 14,000 taxpayers identified by the 2017 Coinbase summons as part of a broader effort to encourage voluntary compliance,” wrote Tyson Cross, a tax attorney and founder of Cross Law Group on Forbes.
6173: This one requests a response about the alleged non-compliance. It also provides instructions on responding to the IRS.
The IRS started sending these notices in June 2019, but only in a small number. Mass mailing started during the week starting July 22, 2019, and will continue through August.
But there’s no need to panic. If you failed to report you crypto income accurately, follow the instructions in the notice and amend your tax return.