IRS BACK TAXES FOR VIRTUAL CURRENCY TRANSACTIONS

IRS BACK TAXES FOR VIRTUAL CURRENCY TRANSACTIONS

IRS Back Taxes for Virtual Currency Transactions

This summer, the IRS will send letters to over 10,000 taxpayers who were involved in virtual currency transactions. These letters are merely meant to be educational—informing the taxpayers that they may have failed to report income and pay taxes from their virtual currency transactions.

However, you can expect that these letters are only the first step in the IRS virtually currency compliance campaign. Taxpayers who continue to violate tax laws related to virtual currency may eventually have to deal with IRS audits, tax debt, penalties, and IRS collection actions.

Virtual Currency Tax Basics

The IRS considers virtual currencies such as Bitcoin as property for tax purposes. The tax laws that apply to virtual currency are similar to the laws that apply whenever a taxpayer receives property in exchange for services or buys and sells property.

For example, a taxpayer who receives property in exchange for services generally includes the fair market value of that property in their taxable income. The same rules apply if a taxpayer receives virtual currency as compensation. 

The amount to include in income is the fair market value in U.S. dollars of the virtual currency at the time it is received. The fair market value can be determined using an exchange with rates established by market supply and demand.

If you sell a virtual currency that has appreciated in value, you may have a capital gain if the virtual currency was considered a capital asset.

How to Correct Virtual Currency Noncompliance

If you receive a notice from the IRS about virtual currency noncompliance, you may need to do any of the following:

  • Amend your tax returns to include income from virtual currency transactions.
  • Pay back taxes, penalties, and interest on your virtual currency transaction income.
  • Comply with the virtual currency reporting and tax payment obligations moving forward.

If you have a substantial amount of virtual currency income to report, you may need help determining your best tax resolution option. Payment plans, Offers in Compromise, penalty relief, and other strategies may be used to resolve your virtual currency tax debt.

Contact a tax attorney to discuss your virtual currency tax problems and get help resolving them.

The Gartzman Law Firm can help you with back taxes and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.

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