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The U.S. Internal Revenue Services (IRS) has started sending ‘educational letters’ to cryptocurrency holders, advising them to pay taxes they may owe or file amended tax returns for those gains.
On July 26, the IRS said that the agency has started mailing letters to taxpayers who failed to indicate crypto transactions, and the tax collector also urges them to pay the tax they may owe. According to the IRS official website, the letters or what the IRS called it ‘Educational Letters’ have already been sent to thousands of taxpayers and more than 10,000 taxpayers will receive these letters by the end of August. The IRS has started sending these letters last week.
Chuck Rettig, the IRS Commissioner who had previously stated that the IRS will issue more guidance, said:
“Taxpayers 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 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.”
According to the official announcement, there will be three types of such educational letters that taxpayers will receive. Letter 6173, Letter 6174 or Letter 6174-A, all three versions of educational letters will help the taxpayers with various aspects filing crypto tax. For instance, the letter will consist of details regarding the appropriate form and schedule and other information on the IRS’s website.
Cryptocurrencies Are Liable to Tax
In July 2018 it was reported that the IRS is beginning series of compliance campaign on U.S. taxpayers to “collect tax on worldwide income from all sources,” including capital gains from cryptocurrencies. Since 2014, it was the first time that the IRS has started such campaigns. The IRS in the statement also affirmed that the agency will remain active making serious efforts when it comes to educating taxpayers and will do audits to criminal investigations as well.
In a notice released by IRS, the agency said that cryptocurrencies such as Bitcoin(BTC)trade is property for federal tax purposes and it is liable to tax. This means that any losses or profits from people’s trading should be reported as capital losses or capital gains. In the notice, the IRS has also guided “how general federal tax principles apply to virtual currency transactions.”
Taxpayers who fail or don’t report the income tax on their crypto holdings will be liable for tax, interest, and penalties, the IRS warned in the latest release.