Have You Received a 1099-K for Cryptocurrency Transactions?
Cryptocurrency exchanges, such as Coinbase and Uphold, have begun issuing Forms 1099-Ks, Payment Card and Third Party Network Transactions, to customers. If you receive a 1099-K from a cryptocurrency exchange, then you can be assured that the IRS is fully aware of your reportable cryptocurrency transactions. This is because cryptocurrency exchanges are required to send 1099-Ks to: (1) customers during any tax year who had payments exceeding $20,000 and engaged in more than 200 transactions in the exchange, and (2) the IRS. Omitting 1099-K information from your tax return will automatically flag your return for underreporting and subject you to IRS penalties.
What Exactly is a Form 1099-K?
A Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return intended to improve voluntary tax compliance by providing a report of certain payment transactions. By January 31st of each year, individuals should receive 1099-Ks if, during the prior calendar year, they received payments from credit card (or other “payment card”) transactions and third-party network transactions. Cryptocurrency exchanges qualify as third-party networks.
The amount reported on a 1099-K does not include any adjustments (such as for credits, or fees). The amount simply represents the gross proceeds from your reportable transactions but not the amount of taxes owed.
Significantly, there is a minimum reporting threshold for third-party networks (such as Cryptocurrency exchanges). In other words, an exchange must issue 1099-Ks for customers during any tax year that received payments exceeding $20,000 and engaged in over 200 transactions in the exchange.
Make Sure You Report Crypto Gains and Losses!
The IRS has been clear that it considers virtual currency to be property. As with other property, the IRS requires that you report your gains and losses derived from cryptocurrency-whether or not you receive a 1099-K.
Again, if you have received a 1099-K, then you can be very sure that the IRS knows about your cryptocurrency. Neglecting to report these amounts will trigger the IRS’s “matching” mechanism in its Information Reporting Program, and the IRS system will flag your return for underreporting-notices, penalties and interest will likely follow shortly thereafter.
If you have unreported cryptocurrency, contact Frost Law today at 202-618-1873.
1Notice 2014-21, 2014-16 I.R.B. 938.