The Internal Revenue Service (IRS) believes that millions of cryptocurrency transactions go unreported despite more awareness of tax rules and it is taking steps to build cases against taxpayers who fail to report cryptocurrency.
Although taxpayers often think that they do not need to worry about criminal exposure, violators can face large penalties and jail time, and anyone convicted may face up to five years in prison or fines of up to $250,000.
The IRS commissioner Chuck Rettig said the move to increase criminal investigations and IRS letters to about 10,000 crypto taxpayers in 2019 was a start. Those who receive the letters and ignore them are vulnerable.
A checkbox on schedule 1 of the IRS draft 2019 form 1040 requires taxpayers to answer whether in 2019 they exchanged, sold, sent or otherwise acquired a financial interest in cryptocurrency.
Notice 2014-21 of the IRS states that cryptocurrency is considered property for tax purposes, therefore you claim losses when you trigger a loss and pay taxes when you record gains.
You must also be able to know when, and how much you paid for the cryptocurrency, including what you received for it.
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The IRS frequently asked questions state that all income losses or gains involving virtual currency must be reported, whether or not you received form W-2 or form 1099.
The IRS requires taxpayers to use a method that is reasonable to value the cryptocurrency and establish accurate values.
