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Cryptocurrency investors and IRS warning letters

On Behalf of | Aug 1, 2019 | IRS Issues

In Georgia and across the U.S., the Internal Revenue Service is currently mailing official letters to thousands of people who invest in cryptocurrencies. The letters issue official warnings for taxpayers with complex tax issues. The IRS plans to mail letters to approximately 10,000 United States taxpayers. A person who may have failed to pay their taxes on cryptocurrency sales may receive form letter 6173, 6174 or 6174-A.

According to various social media posts, some investors have mentioned that the three warning letters represent different levels of income tax neglect. For instance, one letter asks the recipient to review their income tax return and submit an amended form as needed. Another letter warns the taxpayer about their noncompliance with IRS regulations and the possibility of IRS enforcement. The third letter demands a response from the taxpayer with a warning that their failure to return a response will result in an audit.

According to one certified Bitcoin professional working for NGG Tax Group, the IRS is serious about the three letters. She mentioned that taxpayers need to pay attention to the letters and act accordingly. An IRS commissioner has said that the IRS wants taxpayers to understand their tax obligations if they choose to invest in cryptocurrencies. Cryptocurrency investors may want to refer to the official IRS Notice 2014-12 offering guidance on virtual currencies and the taxpayer’s legal obligations.

In the eyes of the IRS, virtual currencies count as though they are physical properties. Accordingly, people who sell virtual currencies are obligated to include the sales as capital gains on their income tax forms. Taxpayers who choose to ignore the letters may end up having their wages levied by the IRS. However, a tax attorney could help an investor avoid audit penalties.