The U.S. Internal Revenue Service last Friday announced what may come as a surprise to thousands of taxpayers who own cryptocurrencies like Bitcoin but who failed to report transactions. If this is you, according to Uncle Sam, you may owe taxes.
Taxpayers who do not accurately report income specifics of virtual currency transactions might be liable for tax, penalties and interest. The IRS said it was planning on sending over 10,000 letters to taxpayers to make them aware of the issue. The notification effort began earlier in July and will continue through August.
In a statement, the agency said: “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.”
This announcement comes as part of a broader collection effort, announced by the IRS in July 2018. This series of compliance campaigns on U.S. taxpayers is aimed at collecting tax on worldwide income from all sources, not just transactions involving virtual currency.
The IRS has indicated it considers cryptocurrencies such as bitcoin property for federal tax purposes. This means that any profits or losses from cryptocurrency transactions should generally be reported as capital gains or losses.
To avoid any nasty IRS surprises, investors, including retirees and future retirees, should consult with both their investment advisors as well as their tax accountants or CPAs to make sure they are in compliance.
You can find a Forbes.com article on this topic here