The IRS is sending letters to cryptocurrency investors to remind them to pay taxes on income earned from cryptocurrency transactions. Over 10,000 letters are being sent to taxpayers who the IRS believes need to pay back taxes on their cryptocurrency investments.
If you earned income from cryptocurrency investments or transactions, it might be a good time to review your tax return. If you find that you owe the IRS, you can file an amended return. Though taxpayers can file an amended return using Form 1040X within three years from the date of filing the original return, it is advisable to file an amended return at the earliest when the IRS is starting a targeted effort to collect back taxes such as this.
By filing an amended return, you avoid the mounting penalties and interest on back taxes, and also stay protected from IRS’ aggressive collection actions such as a tax lien or levy. PC Mag explains:
“‘Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,’ IRS Commissioner Chuck Rettig said in the announcement.
If that isn’t scary enough, Rettig also hinted that the government agency is trying to track cryptocurrency payments online. ‘The IRS is expanding our efforts involving virtual currency, including increased use of data analytics,’ he added.
The letters will be sent to more than 10,000 people by the end of August. How the IRS obtained the names of the affected taxpayers wasn’t made clear. But last year, one of the biggest cryptocurrency investment platforms, Coinbase, said it had shared the data of 13,000 users with the IRS in order to comply with a court order.
‘The court ordered Coinbase to provide taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period,’ the platform said at the time. Originally, the IRS sought data on 500,000 Coinbase users. However, the court ruled that Coinbase needed to turn over data on 13,000 users, who had a trading volume of more than $20,000.
If you’re a cryptocurrency user and haven’t paid taxes on your transactions, the IRS’s letter will educate you on how to pay up. The agency also has an FAQ on how it treats the cryptocurrency as a taxable asset.
The IRS warns it plans on using audits and criminal investigations to ensure cryptocurrency investors are in compliance with tax law.”
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