Crypto Holders to File Taxes: US Taxman Sends Reminders

The US Internal Revenue Service (IRS) sent out letters outlining the process of declaring taxes owned on digital assets.

US owners of digital assets may find themselves

Some observations about the IRS's Letter 6173, probably the most serious of the agency's virtual currency letters:

1. The letter demands a response or the taxpayer will be audited.
2. The years in question goes back to 2013 which is beyond the usual 3 year audit SOL. pic.twitter.com/vQzblZftmT

— Steven Chung (@stevenchung) July 26, 2019

with the tax collector. The US Internal Revenue Service (IRS) is sending out letters detailing what taxes may be owed on cryptocurrency transactions. Until recently, taxing cryptocurrency owners was a grey area with little visible action.

The IRS is sending out different types of letters, from a reminder to review holdings to an outright requirement to file taxes or face an audit. The documents are known as Letter 6173, Letter 6174 and Letter 6174-A.

A taxable event for digital assets may occur when the asset is liquidated. But in the past, there have been fears that even transacting in digital assets may generate a taxable event. The matter of taxing Bitcoin ownership is highly complex, especially given the fluctuating price of digital coins and tokens. 

"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," IRS Commissioner Chuck Rettig said. "The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

For the IRS, digital assets are a form of property, and capital gains tax should be paid when the asset is sold. But this theory also holds it possible that a taxable event happens every time someone pays in digital assets, including for small-scale purchases. 

Of course, it would be a giant task to determine where each Satoshi went, and whether the transfer would be taxable. 

Beyond the IRS involvement with digital assets, the US Securities and Exchange Commission is also tightening oversight. The US SEC has purchased a service to be able to track the contents of a node for several digital assets. 

The SEC is establishing nodes on the blockchains so they can monitor data... I seen the XRP army all excited when they saw this like it was bullish for XRP. No, It's bullish for a surveillance state and it is not XRP specific and this is not good for crypto or humanity. pic.twitter.com/k4QcGQt2l1

— Litecoin Moses {No XRP} ₿ ⧫ Ł (@l3l2ucelee) July 28, 2019

This would allow the SEC to hold a copy of the immutable distributed ledger for several networks, potentially linking transactions to persons.

Via cryptovest.com