Wolters Kluwer Tax & Accounting reviews IRS steps to encourage reporting of virtual currency transactions
The Internal Revenue Service (IRS) considers virtual currencies such as Bitcoin to be property rather than currency and considers transactions involving virtual currency to be taxable transactions. The IRS has taken several steps this year to try to reduce what it views as underreporting of virtual currency transactions.
Reporting not consistent with known transactions
While the IRS has information that thousands of taxpayers have engaged in virtual currency transactions, only a few hundred taxpayers have reported those transactions on their tax returns.
- The IRS issued its first virtual currency guidance in 2014, classifying virtual currencies as equivalent to property and taxable the same as property
- The IRS began seeking information from virtual currency exchanges on taxpayers engaged in virtual currency transactions
- In 2019, the IRS:
- Sent letters to approximately 10,000 taxpayers encouraging them to come into compliance on reporting virtual currency transactions
- Issued its first additional guidance on the taxation of virtual currency transactions, addressing variants called “hard forks” and “air drops”
- Issued a set of 43 frequently asked questions addressing the taxation of virtual currency transactions
- Added a question on a draft Form 1040 schedule requiring a yes or no answer as to whether or not the taxpayer has engaged in virtual currency transactions
To read the full press release click here.
Federal tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, is available to discuss the rules involving the taxation of virtual currencies.
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