March 23, 2018 - IRS releases two Crypto Tax Reminders

Today, the IRS issued two information releases for cryptocurrency taxation:

1. Information Release 2018-71 (to Taxpayers)
2. e-News for Tax Professionals 2018-12 (to Tax Professionals)

New IRS Guidance? - More like a Reminder

Both the IR 2018-71 and e-News 2018-12 discuss, as a sort-of reminder, the general tax principles that apply to Bitcoin and other cryptocurrencies. The following are the key points to takeway

• The IRS's most recent source of guidance for Bitcoin/Crypto tax information is still, as of today, Notice 2014-21. Today's releases are just a reminder to taxpayers/professionals and re-emphasize using the Notice in combination with general tax principles that apply to property transactions.
• The IRS reminds taxpayers that if they fail to report/pay taxes on Bitcoin transactions, they could be subject to interest and penalties.
• In more serious cases, a taxpayer could be subject to jail time and significant penalties for tax evasion.
• The IRS highlights in IR 78-71 that there are now over 1500 currencies. An avid reader of Notice 2014-21 knows that, for Bitcoin and other cryptos to be treated as "property" for U.S. purposes, they must be "convertible virtual currency" (tradeable between users and exchangeable for USD/other currencies). One might take this to mean that the IRS views all/most of the 1500 currencies as "convertible virtual currency" subject to the Notice 2014-21 guidance.

Takeway

The IRS reminded taxpayers/professionals that Bitcoin/crypto income is subject to taxation. The IRS highlighted that failure to pay taxes on cryptos could be considered tax evasion.

Last, this is only speculation: based on the "1500" number, the IRS may be looking at websites such as Coinmarketcap as an indicator of the characteristics of a crypto, to help when applying the rules in the Notice to determine whether to treat a it as a "convertible virtual currency." This might seem obvious, but in tax law, bright lines are often necessary and helpful in correctly interpreting the tax guidance.

Picture Credit
https://pixabay.com/en/users/skeeze-272447/

Sources

https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions
https://www.irs.gov/e-file-providers/join-e-news-for-tax-professionals

Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post does not create a client relationship between the author and the reader.