On July 26, the Wall Street Journal reported that the Internal Revenue Service has mailed letters to over 10,000 cryptocurrency holders warning that those who fail to report income and pay tax on cryptocurrency transactions may be penalized. IRS Commissioner Chuck Rettig has stated that taxpayers should take the warnings “very seriously,” as the IRS is expanding its regulatory focus in this field.
Cryptocurrency is a form of virtual cash that allows payment to be sent online from one individual to another, while circumventing traditional financial institutions. Unlike paying online with a credit card or other traditional means of payment, cryptocurrency is based on underlying “blockchain” technology. Blockchain is a public ledger that records every cryptocurrency transaction. Blockchain in itself is often considered to be safer than traditional money transfers, because it can document, trace and verify the currency used in every transaction.
Cryptocurrency has been largely unregulated thus far because it is so unique, complex and difficult to define.
Cryptocurrency transfers are anonymous, so they are frequently used to fund illicit activities. However, cryptocurrency is also in finite supply, so it is often used as a form of investment property rather than as the virtual cash it was intended to be.
Thus far, it appears that the most prevalent legal use of cryptocurrency is as an investment, and the IRS has made clear that it intends to tax it as such. Further regulation from the IRS is certain, but details are yet to be released. If you currently hold cryptocurrency or have in the past, we encourage you to contact our office for up-to-date guidance regarding this dynamic new currency.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.