The Internal State Revenue (IRS) of the United States has started issuing a whole lot of new warning letters for cryptocurrency users. The agency did a similar thing last year when it sent warning letters to almost 10000 individuals. Previously, the IRS had released a draft form 1040 which focused on making serious reforms for specifically cryptocurrency users. On 2019 draft’s form, the IRS for the first time inquired about the taxpayer’s cryptocurrency investments. Clearly, the IRS has been taking every step to prioritise perfect and accurate cryptocurrency reportings.
IRS Sees Digital Assets as a Property Similar to Stock and Derivatives
However, it is clear that the IRS has been viewing digital assets as a property, a reason why they have made income from then a subject to tax. As we know, cryptocurrencies are decentralised which means they are not regulated by the authority. Consequently, many American investors were attracted by the generous profit that crypto offers and this caught the IRS’s attention. Hence, the agency decided that crypto incomes must be properly taxed and forced major cryptocurrency companies including Coinbase exchange to send them regular user data and updates.
IRS Warning Letters Contains Three Parts
The letters issued by the IRS can be categorised into three types. The first type, Letter 6173 is the most serious one among the three and informs the concerned user about the last date by which he must respond, failing to which their tax accounts will be scrutinized. The next two, letter 6174 and letter 6174-A essentially remind the users of their duty regarding tax reporting. However, the Taxpayer Advocate Service, an independent wing inside the IRS has stated that sending letters may be a violation of the taxpayer rights.
IRS Looking for Companies to Report Loss and Gain of the Crypto Market
The IRS letter begins with informing the users that if they have not reported their cryptocurrency transactions accurately on the income tax return forum then they must file amended returns or delinquent returns immediately. And in case they do not do this, then their actions may be treated as civil and criminal activity in the future. Moreover, the IRS was looking for potential companies which can report about the profit and gain related to the digital assets market. In addition, the IRS was looking for ways to provide a solid framework for crypto trade regulation in the US. It is clear the agency has been taking every small step to ensure a proper cryptocurrency trading environment for the users.
