The IRS to Contact Virtual Currency Owners

The IRS has just announced that it is beginning to send out 10,000 letters to taxpayers that it believes own, or have owned, Virtual Currencies or Cryptocurrencies (Exp. Bitcoin, Ether, Litecoin, Etc.). These letters will come in three different variations and will serve to remind the taxpayer of their responsibility to report cryptocurrency transactions.

The type of letter the Service sends to a given taxpayer will depend on whether the IRS knowns that the taxpayer has sold cryptocurrencies or currently owns cryptocurrency. The notices are believed to be generated from information that the Service has obtained from a variety of sources, including the cryptocurrency exchanges.

The IRS has also hinted that additional guidance will be released on the tax treatment of cryptocurrencies. At this time, the best guidance available is an IRS notice from 2014 which treats cryptocurrencies as property for tax purposes. The IRS has yet to formally address several issues with respect to reporting and compliance.

If you receive one of these letters, or have questions related to the tax treatment of holding or mining cryptocurrency, please contact your Fenner Melstrom & Dooling, PLC professional right away.