There are currently over 18,000 different virtual currencies, from Bitcoin and Ethereum to thousands of tiny or defunct currencies. They are everywhere now. The Internal Revenue Service ( IRS ) has been following these developments closely and has included a question about them on form 1040 for every tax filer to respond to. If you had any dealings in “virtual currencies”, you are to check a box and then report any income or losses on the appropriate forms.
Because these forms of currency are so new, reporting has not been mandatory for crypto brokers like Coinbase.com, but that is changing. As the IRS has become aware of crypto transactions, they have begun sending out notices specific to cryptocurrency reporting.
For those who receive notice 6174 or 6174-A, the IRS is informing them that they have information about possible crypto transactions that might not have been reported, and they suggest that the recipient take another look at their tax reporting. The good news is that these notices don’t require a response, but they could quite possibly be followed up by other notices that will.
It states that the IRS is aware of one or more virtual currency accounts that were not reported on your taxes and gives you a deadline by which to respond. The response needs to include consideration of all crypto transactions for a particular year, including an amended return and back taxes paid if required. Failure to do this by the deadline on the notice will result in referring the account for examination, with interest and penalties assessed.
The IRS considers virtual currencies to be property and not currency, and thus any time they are sold, used, or exchanged taxable income can result. They are getting better at detecting crypto transactions and required 1099 reporting goes into effect in 2023. These notices are likely to become more commonplace in the near future and definitely should not be ignored.
Written by Dan Connors
Edited by Team NOTICENINJA