IRS Guidance on Virtual Currency

As the topic of virtual currency continues to be on the minds of taxpayers, we at Abdo wanted to remind you that the IRS issued guidance on this topic back in 2019.

Expanding on guidance from 2014, the IRS issued additional detailed guidance to help taxpayers better understand their reporting obligations for specific transactions involving virtual currency. The guidance includes Revenue Ruling 2019-24 and frequently asked questions (FAQs).

In Notice 2014-21, the IRS applied general principles of tax law to determine that virtual currency is property for federal tax purposes. The Notice explained, in the form of 16 FAQs, the application of general tax principles to the most common transactions involving virtual currency.

The IRS is aware that some taxpayers with virtual currency transactions may have failed to report income and pay the resulting tax or did not report their transactions properly. The IRS is actively addressing potential non-compliance in this area through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

For example, in July of this year the IRS announced that it began mailing educational letters to more than 10,000 taxpayers who may have reported transactions involving virtual currency incorrectly or not at all. Taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.*

Have more questions on the topic of virtual currency on your tax returns this year? Reach out to our tax team to start the conversation.

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Listen to Abdo partner Chris Powers discuss virtual currency, NFTs and more on WCCO Radio:

*Source for information contained in this article: IRS Newsroom

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