IRS Sending 10,000 Warning Letters to Cryptocurrency Investors
As part of the Internal Revenue Service's Virtual Currency Compliance Campaign, the agency is sending warning letters to more than 10,000 cryptocurrency holders. The move comes after reports that a mere .04% of tax filers reported crypto gains.
Digital currency traders may receive one of three different educational letters, Letter 6173, Letter 6174, or Letter 6174-A. The IRS is hoping that taxpayers will take these letters seriously and review their past returns for errors. If any errors are found, taxpayers should amend past returns and pay back taxes or risk violating federal law.
According to IRS Commissioner Chuck Rettig:
"The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."
One of the biggest problems for consumers is that many cryptocurrency exchanges don't provide a complete transaction history. This leaves it up to investors to keep track of their activities by hand.
The IRS has declined to say how it was targeting cryptocurrency holders, but many have speculated that it's connected to the cryptocurrency exchange Coinbase. Back in March of 2018, Coinbase was ordered to turn over information about more than 13,000 accounts to the IRS. This data included the customer's name, address, birth date, taxpayer identification number, as well as information about account statements and transactions.
Critics, calling this move a fishing expedition, have reported that some of their clients have received a letter despite filing correctly. However, with such a low percentage of crypto traders reporting their gains, the move isn't entirely surprising.
If you’ve already completed your crypto tax training, your past clients may be coming to you for advice about this issue. The first thing to advise is not to panic. While receiving a letter from the IRS can be intimidating, you can take steps to correct past oversights. Start by reviewing tax returns and comparing the gains they made with what was reported. After that, you can resubmit past tax returns and make amends when needed.
If you aren’t already a crypto tax professional, but you’d like to become one, Crypto Tax Academy is the place for you. With our training, you’ll learn everything you need to know to make sure your crypto clients are in compliance. You can also earn up to 30 hours of IRS approved CE/CPE credit upon completion. Ready to get started? Click here for more information and register to earn your crypto tax certification.