On September 19, 2018, the House Ways and Means Committee wrote a letter to the IRS urging the IRS to “issue updated guidance, providing additional clarity for Taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies”.

The House Ways and Means Committee states its Virtual Currency (VC) concerns in the letter as follows:

  • IRS continues to expand its enforcement activities without issuing any further guidance for Taxpayers.
  • Taxpayers are seeking to better understand and comply with their tax obligations when using VC.
  • IRS intended to issue additional guidance, but the IRS has not issued any additional guidance that Taxpayers may rely upon to better understand their tax obligations.
  • IRS has taken enforcement actions as evidenced by the IRS utilizing its John Doe Summons authority to seek the records of approximately half a million Americans who held VC between 2013 and 2015.
  • IRS's Large Business and International division launched a new compliance campaign focusing on non-compliance related to VC.
  • IRS announced that it would not be creating a voluntary disclosure program to address Taxpayer’s tax non-compliance related to VC as evidenced in the IRS new release dated July 2, 2018 where the IRS states: “U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. The IRS will continue to consider and solicit Taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical. The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency”.
  • IRS reminded Taxpayers in March 2018 that those Taxpayers who do not properly report the income tax consequences of VC transactions can be audited for those transactions and held liable for penalties and interest or could be subject to criminal prosecution for failing to properly report the income tax consequences of VC transactions.

Don’t be a victim of your own making

Without clarity and guidance from the IRS, VC investors will continue to have accounting challenges at tax time.  Many VC investors are knowledgeable with all the tax rules applicable to VC as it is viewed as “property” by the IRS and it is subject to capital gains tax.  VC holders ought to maintain impeccable VC records to memorialize their taxable transactions and consult a VC Tax expert.

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