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IRS Expands Virtual Currency Tax Guidance

by Mike Godfrey, Washington

11 October 2019

On October 9, 2019, the United States Internal Revenue Service issued two new pieces of guidance for taxpayers who engage in transactions involving virtual currency.

The new guidance includes Revenue Ruling 2019-24 and frequently asked questions (FAQs). It supplements guidance contained in Notice 2014-21, published by the IRS in April 2014.

In particular, the new revenue ruling addresses common questions by taxpayers and tax practitioners regarding the tax treatment of a cryptocurrency hard fork. In addition, a set of FAQs address virtual currency transactions for those who hold virtual currency as a capital asset.

In Notice 2014-21, the IRS applied general principles of tax law to determine that virtual currency is property for federal tax purposes. The Notice explained, in the form of 16 FAQs, the application of general tax principles to the most common transactions involving virtual currency.

Noting that some taxpayers with virtual currency transactions may have failed to report income and pay the resulting tax, the IRS said that it is actively addressing potential non-compliance in this area through a variety of efforts, ranging from taxpayer education, to audits, to criminal investigations. For example, in July 2019, the IRS announced that it began mailing educational letters to more than 10,000 taxpayers who may have reported transactions involving virtual currency incorrectly or not at all.

TAGS: capital gains tax (CGT) | compliance | tax | tax avoidance | law | audit | internet | education | United States | currency | individual income tax

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