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IRS warns: you still owe taxes on cryptocurrency.

On Behalf of | Mar 29, 2018 | Tax Law |

You may have heard the term “cryptocurrency” being thrown around in recent years. If you’re one of the early adopters of this digital currency transaction technology—e.g., Bitcoin, Ethereum, Litecoin—then this notice applies to you: The IRS has issued a reminder that although this type of currency may be virtual, it’s still traceable—and you still owe taxes on such income.

The IRS recently won a legal battle against Coinbase—one of the world’s leading platforms for buying, selling and transferring cryptocurrency. Coinbase initiated the lawsuit after receiving a series of John Doe summonses from the IRS. Pursuant to the lawsuit’s resolution, Coinbase must now release information on more than 13,000 of its users to the IRS.

What does this mean for users of on the cryptocurrency exchange? Your activity is not anonymous. If you fail to report income received via virtual currency transactions, the IRS will likely notice.

Penalties for failing to report cryptocurrency income range from inconvenient to severe. In the best case scenario, you’ll get audited, and you may have to pay penalties and interest. The worst case scenario, on the other hand, involves criminal charges, for which the penalties are stiff:

  • Tax evasion: as much as five years in prison and $250,000 in fines
  • Fraudulent tax return filing: as much as three years in prison and $250,000 in fines

The inception of cryptocurrency creates a complicating wrinkle for tax payers. If you’re confused about whether a sale or exchange in digital currency constitutes a gain or a loss—and whether you owe taxes on it—consult with an experienced tax attorney.

We insist that your taxpayer rights are protected and your options are known.

Our services are confidential and are protected under the attorney-client privilege as allowed by law.