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IRS is tracking cryptocurrency users with warning letters on tax deductions

By the end of August, 10,000 taxpayers will have received the letters, the IRS said on Friday. Regulators identified taxpayers on the basis of what the agency described as "ongoing compliance with IRS regulations".

The IRS sends three types of letters to taxpayers – letters 6173, 6174 and 6174-A – depending on the severity of the matter. On social media, some people claiming to have received the letters say that a version merely asks taxpayers to review their tax returns and submit an amended one if necessary. Another serious warning is the possible failure to comply with US tax law and the potential enforcement of the IRS. A third will require an answer or the recipient will be reviewed.

On Thursday night, Nicole Green, a tax consultant and certified Bitcoin expert at the NGG Tax Group, received an urgent email from a client regarding possible unreported cryptocurrency transactions.

"No one talks about taxes at midnight in the middle of July," Green told CNN Business. "But this letter got their attention and they were freaking out."

This seems to be exactly the kind of attention the Internal Revenue Service wants to attract.

"Taxpayers should take these letters very seriously by reviewing their tax returns and, if necessary, repeating earlier declarations and making changes to pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig. "The IRS is expanding its efforts on virtual currencies, including the increased use of data analytics, and we are focusing on enforcing the law and helping taxpayers fully understand and fulfill their duties."

The duties, however, were not clear enough. [19659004] "As the IRS did not provide much guidance except for one release, many people said," I'll take care of it, "Green said." Now the IRS is knocking on doors. "

The existing IRS Notice 2014- 21 states that for the purposes of federal taxation, virtual currency is property. When a user buys cryptocurrency at a certain price, and later it is then traded away – whether by buying a coffee or selling it on a stock exchange – the Sale is subject to capital gains tax as it is considered to be a property.

If the transaction is not reported to the IRS, the user may be subject to criminal and financial sanctions.

For those who have received notifications, Green states that The next best step is to request your payroll statement, which lists all the data IRS has received in recent years You can owe taxes on the full amount, but you can not.

"Do not freak out," she said. "But you have to take action, get a copy of your log, call a tax adviser, and change your tax return if necessary."

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