On July 26, 2019, the IRS released IR-2019-132, stating that it has started sending out warning letters to taxpayers suspected of incorrectly reporting virtual currency transactions. The IRS noted that by the end of August, more than 10,000 taxpayers will receive these letters.
The IRS clarified that these are "educational letters" which come in three variations: Letter 6173, Letter 6174, and Letter 6174-A. All three versions are supposed to assist taxpayers in getting compliant and correcting errors.
The IRS emphasized that taxpayers who incorrectly report their virtual currency transactions may be subject to tax, penalties and interest-and, in some cases, criminal prosecution.
The IRS gave every indication that virtual currency transaction non-compliance is considered a high threat to the tax system and that it is expanding its efforts to address this problem. According to IRS Commissioner Chuck Rettig: "[t]he IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."
Significantly, taxpayers should understand that these letters should be taken seriously. Taxpayers should promptly review their returns and, if necessary, file amended returns. Ignoring these letters could create even bigger problems.
If you are concerned that you may have misreported a virtual currency transaction, give us a call to discuss the most favorable approach to come into compliance.