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As part of its efforts to ensure compliance, the IRS has commenced sending out letters to erring crypto users. More than 10,000 people will receive one of three letters, advising them to report earnings and pay required taxes.
According to an official news release published by the Internal Revenue Service (IRS), the agency has commenced sending notifications in form of letters to people who have been holding or exchanging virtual currencies for various reasons.
Basically, anyone who uses any virtual assets whether for trading, investment or as a means of exchange, could be receiving one of three types of letters. These letters are to notify the people involved – at least 10,000 for now – about their failure to report cryptocurrency income and payment of the required tax.
The IRS classifies all virtual currency as “property for federal tax purposes” and so there is a need for the agency to provide general guidance and direction on how tax requirements and principles already in place, may relate to virtual currency income and general activity.
Chuck Rettig, the IRS Commissioner has advised all recipients to immediately swing into action upon receiving any of these letters and begin the process of rectification. He expressed the agency’s willingness to guide and help people understand what is required of them. According to Rettig:
“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.”
The IRS has already started sending out these letters and hopes to have reached 10,000 people by the end of August. The names of these recipients were “obtained through various ongoing IRS compliance efforts.”
The letters, as earlier stated, are in three variations including the Letter 6173, Letter 6174 and the Letter 6174-A. The last two letters do not exactly require any action. According to reports, it is possible to receive one of the two letters even if all tax requirements have been met and if this is the case, recipients do not need to take any action.
Recipients of the Letter 6173 are however required to take action as this letter suggests evasion or at least some noncompliance. An excerpt from this letter suggests a timeframe the agency is basing its crackdown on.
“For one or more of tax years 2013 through 20177, we haven’t received either a federal income tax return or an applicable form or schedule reporting your virtual currency transactions.”
In 2018, the IRS began a compliance campaign which included virtual currencies among other things. According to the announcement at the time, it was to address the issue of non-compliance in the cryptocurrency sector and to actively engage in enforcing compliance through efforts including taxpayer education, periodic audits, and even criminal investigations and proceedings.
At the moment, some quarters have advised that everyone who is involved in the crypto sphere, take decisive steps to ensure that they comply with the IRS whether or not they receive a letter.