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IRS Launches Compliance Campaign Aimed At Virtual Currency Investors

By

Nathan

Graham

WriterETHNews.com

The IRS has announced new efforts to ensure investors stay honest.

On July 2, the Large Business and International (LB&I) arm of the Internal Revenue Service (IRS) announced the development of five new compliance campaigns. These campaigns are to focus on an assortment of regulations, including those connected to the taxation of gains received from investing in cryptocurrency.

A compliance campaign is a way in which the IRS targets those who might not be adhering to current tax laws, such as by not reporting capital gains from bitcoin trades.

Responses can include increased and targeted audits, but typically the IRS starts by sending out what it calls "soft letters," in which suspected offending taxpayers are alerted that the agency is aware of their behavior and reminded of the laws surrounding tax filing.

The IRS announcement states:

"These five additional campaigns were identified through LB&I data analysis and suggestions from IRS employees. LB&I's goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources."

The IRS issued guidance on the taxation of virtual currencies in 2014, when the agency clarified that it did not consider them to be actual currencies. In 2016, the IRS served a broad summons on popular exchange Coinbase in an effort to uncover traders who might not have properly reported earnings. A lawsuit resulted in a significant narrowing of the summons' scope in November 2017 to customer accounts "with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013 to 2015 period."

According to Forbes, the tax authority declared that in 2016, only 802 individual taxpayers out of 132 million who filed online reported gains related to cryptocurrency. In this latest announcement, the IRS explicitly stated, "U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency."

The IRS plans to combat this problem through "outreach and examinations," and it is encouraging taxpayers who failed to previously report their crypto earnings to "correct their returns as soon as is practical."

In the statement, the IRS also makes a point to say, "The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency." However, Forbes noted that "many tax practitioners expect that to change."

In March, the IRS had released a letter reminding taxpayers of their obligation to report gains earned from investing in cryptocurrency, and in April, it was reported that cryptocurrency investors in the US were expected to be responsible for $25 billion dollars in taxes related to cryptocurrency.

Nathan Graham

Nathan Graham is a full-time staff writer for ETHNews. He lives in Sparks, Nevada, with his wife, Beth, and dog, Kyia. Nathan has a passion for new technology, grant writing, and short stories. He spends his time rafting the American River, playing video games, and writing.

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