IRS looking to educate on virtual currency policy

The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

“Disregard the word virtual for a minute and just think about currency,” said IRS spokesperson Michael Devine. “You’ve
got U.S. dollars, you’ve got German marks, you’ve got British pounds. Those are all currency. They all have value. When you are dealing with a currency of another country, you need to convert that into U.S. dollars and report any income on your tax return.”

The idea is that the same is true of Bitcoin or the like.

“The IRS has been looking at a lot of databases and we have found that some people, we’re sending out about 10,000 letters, some of these people may not have known they had to file this virtual currency transaction information on their tax return, or they may have done it wrong. What we’re trying to do is a little education.”

IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions.

“It’s the responsibility of the taxpayer to tell the IRS the value of that transaction,” said Devine. “They’ve got to do the paperwork. That’s one of those, records, records, records things that we always talk about. There’s a lot of information on irs.gov about virtual currency.”

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest.