Just a few weeks ago, the Treasury Department released a publication stating it did not require taxpayers to report cryptocurrency. Now the IRS says differently.
Cryptocurrency is a concept of digital currency that operates independently of a central bank. When buying or selling things, payments require a credit firm or bank to process the payment. The idea behind cryptocurrency is to eliminate the need for a middleman, in this case banks and creditors. Additionally, it aims to minimize the time lapse between transactions and the trust we give these companies with personal information.
The use of this digital currency allows users to easily exchange money directly, domestically and internationally.
As this convenience gains popularity, it also introduces new concepts of the crypto market. Most recently, the Internal Revenue Service (IRS) has faced challenges with virtual currency in regard to determining how to handle this new dynamic of exchange.
What did the IRS do?
At the end of July, the IRS began sending letters to over 10,000 taxpayers that own virtual currencies. These letters expressed the concerns of taxpayers failing to report the additional income these cryptocurrencies bring in. Those who are found guilty of this face tax repayment of these assets.
However, in 2014, the IRS issued a guide to taxpayers regarding cryptocurrency. The notice informed the public that as long as the transactions are convertible to cash, virtual currency will be treated as a capital asset.
Taxpayers are encouraged to take these letters extremely seriously. For some, this situation has left taxpayers angered and confused.
Sources further explain that the potential reasoning for the IRS’s decision could be due to the unexpected surge of the use of virtual currencies. At this time, it was difficult for policy makers to predict the appropriate tax methods for these transactions.