Crypto currencies such as Bitcoin have extended its bounds beyond their applications as units of account and also mediums of exchange. A unique technological innovation is familiar to most crypto currencies which act as a public ledger that functions as a system that is decentralized for ownership as well as value transfer’s recordings while the accounting is a complex technical operation.
However, the IRS is issuing another round of letters to warn the crypto currency users; at this time to taxpayers it believes to have income from exchange transactions that are misreported.
Additionally, the three letters sent out last month to crypto traders giving them advice that they might have filed their taxes incorrectly, the IRS is now also informing confident investors that they did, reported the wrong amount of income generated from the transactions made from crypto currencies. And the agency is looking to collect.
It is then advisable that Individuals who received letters from the IRS recently should adhere to the warnings of the agencies about reporting their assets from crypto currency.
In July the agency started issuing letters to more than 10,000 crypto currency users that are suspected of failing to misreport their digital assets. Nonetheless, the messages contain a warning of criminal enforcement action if the asset fails to be adequately disclosed to the IRS Internal Revenue Service.
Traditionally there are several ways taxpayers can escape penalties when they have failed to pay or filed up their taxes on time—for example; they can prove they had reasonable cause or are first-time offenders.
But at the moment the IRS Internal Revenue Service has directly warned to the crypto currency users, it will then be tough for them to justify getting penalty relief. The more the IRS has publicized an issue, the less likely it is to buy the argument.
According to one letter shared, nearly $4,000 is owed by a taxpayer for the 2017 tax year. This taxpayer has accumulated more than $3,600 alone in tax-paying, with another interest of about $200 incurred.
A co-founder of tax software provider Chandan Lodha stipulated that the IRS has been sending some customers these so-called CP2000 notices, indicating they are potentially on the hook for revenue they did not report.
The IRS is conveying these different notifications, and those are somewhat similar to notice letters of changing degrees of how threatened they were, Moreover, he made mention of the three letters earlier. But the CP 2000 is a different letter.
Finally, taxpayers need to be consistent and not show up as if they’re flipping their position from one year to the next to get a better tax outcome.
Taxpayers should take into consideration this logic into account when dealing with gray areas, such as determining the fair market value of their crypto currency assets as well as applying like-kind exchange principles