Many cryptocurrency enthusiasts remain entirely unaware of their tax obligation on virtual currency transactions — but that’s about to change. In recent years, the IRS has made a clear effort to alert taxpayers with crypto investments. This effort was once again apparent with the release of IR-2018-71, which reminds taxpayers of their need to keep the agency in the loop about all things crypto. This release should not be cause for alarm, but it does underscore the increased need for attention as you handle the tax implications of your crypto profile.
IR-2018-71: A Pointed Reminder
Essentially, IR-2018-71 rehashes what tax experts already knew about the IRS’s new approach to crypto: virtual currency transactions should be reported on annual tax returns. Additionally, 2018-71 highlights a few of the many consequences taxpayers may face if they neglect to report appropriately on their taxable crypto activity. These penalties range from audits and fines to criminal prosecution for severe offenders. The notice acknowledges that, due to the diversity of cryptocurrencies, some traders may be tempted to evade taxes — but the message is loud and clear: they will not get away with evasion for long.
Little Actual Guidance
While IR-2018-71 provides a stark reminder of the need for reporting on cryptocurrency activity, it offers little guidance as to how, exactly, such reporting should take place. Rather, readers are encouraged to seek further information in Notice 2014-21. The good news? Clarification should arrive in the near future, with IRS Commissioner Charles P. Rettig explaining, “Taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and [I] have made it a priority of the IRS to issue guidance.”
As you delve into the implications of IR-2018-71 and other crypto-related IRS tax notifications, don’t hesitate to seek advice from a tax expert. The Highland Tax Group offers a personalized approach to crypto tax matters — contact us today to learn more.