Internal Revenue Service Reminds Taxpayers To Report Cryptocurrency Incomebr>
The Internal Revenue Service (IRS) has reminded US taxpayers that income from cryptocurrency transactions is reportable on their income tax returns.
In a memo published Friday, the IRS said crypto transactions are taxable by law just like transactions in any other property. Taxpayers are expected to abide by the guidelines outlined in IRS Notice 2014-21.
According to the guidelines, a cryptocurrency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” digital currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, US dollars, Euros, and other real or virtual currencies. The sale or exchange of convertible digital currency, or the use of convertible digital currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.
The IRS said that taxpayers who do not properly report the income tax consequences of cryptocurrency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.
“In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions,” the agency said. “Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.”
The tax agency also cautions against those interested in trying to slip through under the radar. “Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS,” the agency said.
Last month, the IRS assigned a team of ten elite criminal agents to hunt for cryptocurrency investors who evade taxes. The team will work with international criminal agencies to investigate unlicensed exchanges.