IRS Announces Plans to Contact 10,000 Virtual Currency Owners about Tax Compliance

Jed M. Silversmith, David J. Moise, Jill E. Misener, and Jeffrey M. Rosenfeld

Taxpayers who own virtual currency should be prepared to respond to IRS inquiries regarding their virtual currency holdings and, if necessary, substantiate their reporting of these investments on their federal tax returns.

On July 26, 2019, the Internal Revenue Service (“IRS”) announced that it was in the process of contacting 10,000 taxpayers about the need to accurately report virtual currency on their tax returns. The IRS stated the letters are “educational” in nature and provide information about how to correct past reporting errors. The announcement quoted IRS Commissioner Chuck Rettig as saying that “[t]axpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties.”

The proper reporting of virtual currency on tax returns has been an ongoing focus of the IRS. Notably, in July 2018, the IRS announced a compliance campaign for taxpayers who fail to accurately report virtual currency. A compliance campaign is an issue-based examination meaning that the IRS conducts a narrow review of the tax returns focusing solely on one issue—in this case, unreported gains from the sale of virtual currency.

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