Last month, the United States Internal Revenue Service (IRS) sent approximately 10,000 letters to cryptocurrency holders regarding their crypto holdings. The IRS has begun sending letters to taxpayers with digital currency transactions that potentially failed to report income and pay the resulting tax from digital currency transactions or did not report their transactions properly.
Those who already received letter 6173, titled “Reporting Virtual Currency Transactions” on July 16 now have less than a week to reply to the IRS. The most serious of the trio of letters that were disseminated (sent alongside letters 6174 and 6174-A), 6173 requires immediate action.
If recipients do not respond to this letter in time, their tax accounts will be audited by the IRS. Recipients are required to respond to this letter within 30 days of the date listed on the letter and requires all crypto transactions between the years of 2013 to 2017 be reported. Reports must include transactions between wallets and exchanges.
1. If you failed to report for one year or all years from 2013-2017
Submit delinquent returns as soon as possible. File the delinquent returns with an explanation of the reason for the failure. If your failure to report was not due to delinquency or evasion, you need to provide an explanation to exhibit good faith. Then, the IRS may not pursue legal actions. However, if the cause is not reasonable in the eyes of the IRS, you may be subject to civil or criminal penalties.
2. If you filed incorrect reports for one year or all years from 2013-2017
If you did not report your full activity, including all transactions from all blockchains and exchanges since 2013, then you have filed an incorrect report. Due to a lack of knowledge regarding crypto tax practices, many who reported in the early years of crypto did not submit an accurate report. If you belong to this group, now is your chance to rectify errors. File an amended return on incorrect calculations from 2013-2017 by submitting IRS tax Form 1040X.
3. If you believe you have accurately and completely filed your reports with the IRS
Submit an affidavit stating that you have filed the entire history of currency operations, including the means taken to ensure compliance with IRS requirements. Within the affidavit, be sure to report that your filing is “true, correct and complete,” as it must meet all three criteria. Additionally, you must submit all copies of previous reports.
Regardless of the letter you received and the steps you are advised to take, it is recommended that you consult with a tax professional to assist in compiling an accurate and comprehensive report.
Sign-up for our newsletter
IMPORTANT: IRS Circular 230 Disclosure
Any tax-related information contained in this Site, the Services, or any deliverables thereof, is not tax advice, and not intended or written to be used or be relied upon, and cannot be used or relied upon, by you or any taxpayer for the purpose of avoiding penalties imposed under the United States Internal Revenue Code or any other applicable law or for promoting, marketing, or recommending to another person any transaction or matter addressed herein or to provide tax advice or any tax-related matter. You should seek the advice of a tax professional regarding your particular circumstances notwithstanding the use of our Site, Services or any deliverables thereof.
Bittax makes no claims, promises, or warranties about the accuracy of the information provided herein. Tax advice cannot be provided on a general basis and must be specifically tailored for each individual by his or her representative. Everything included in this Site, the Services, or any deliverables thereof, is nothing more than our opinion and is not, and should not be relied upon as, a statement of fact.
YOU ACKNOWLEDGE AND AGREE THAT NOTHING IN THE SITE, THE SERVICES, OR ANY DELIVERABLES THEREOF, NOR ANY INFORMATION CONTAINED THEREIN, ARE INTENDED, OR SHOULD BE RELIED UPON, TO REPLACE INDIVIDUAL TAX ADVICE, TO MEET THE TAX AUTHORITIES POSITIONS OR REQUIREMENTS, TO GUARANTEE AN ACCURATE OR TRUE TAX OBLIGATION, TO BE APPROVED OR ACCEPTED BY THE TAX AUTHORITIES, OR IN ANY WAY TO OBLIGATE THE TAX AUTHORITIES.