As we reported in our article last week, the US Government has recently started to formulate a position on cryptocurrencies. From internal IRS presentations to tweets by the President, everyone is talking about crypto these days. Now, the IRS has started to make true on their words and followed through.
This article is for you if you…
- …have received the 6174-A letter from the IRS
- …just as well should or could have received one of the letters 6173, 6174 or 6174-A from the IRS
- …are thinking about declaring your gains from crypto transactions
The Government is Paying Attention
The rise in governmental interest has two implications: One, crypto is now being taken more seriously and seems to slowly be leaving the early adopter phase. Two, you should seriously consider declaring gains — if you haven’t already done so.
Why should you declare your gains now?
Thousands of letters from the IRS were sent to unsuspecting hodlers and traders all over the US. From what we could gather, the letters were sent to users of the popular crypto exchange platform Coinbase.
This is one of the letters sent out by the IRS.
If you’re on your phone or have trouble reading the scan, I’ve taken the liberty to transcribe the juicy bits:
“We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.
For one or more of tax years 2013 through 2017, we haven’t received either a federal income tax return or an applicable form or schedule reporting your virtual currency transactions.”
The letters with cryptic names such as 6173, 6174 or 6174-A are considered by some to be just a “warning shot” without immediate consequences — but receiving one of those letters is sure to get your heart racing — even if you haven’t done anything wrong.
After discussing the abilities that the IRS has in our last article — from subpoenaing Microsoft or Facebook to digging through blockchain records — they can most likely back up their claims.
I Received a Letter — What do I do?
The great thing is that the IRS has already stated what you should do:
If you failed to file one or more income tax returns, file the delinquent returns and report your virtual currency transactions as soon as possible. For more information see www.irs.gov/filing
If you made a mistake on your income tax return, such as not reporting your virtual currency transactions or incorrectly calculating your income, gain, or loss; you can file an amended return. For more information, visit www.irs.gov/forms-pubs/about-form-1040x
Well, that’s good, right? At least in theory… Right up until that point at which you realize that you actually have no idea what you should declare because you don’t remember what transactions you did and how to even calculate your gains.
If you need help declaring your income — or even figuring out what your income IS, you should check out Accointing. The portfolio tracking and tax report creating, the browser-based platform makes declaring your income easy.
I Didn’t Receive a Letter — What do I do?
You didn’t receive a letter, so it’s all good, right? No need to declare anything? Well, not quite.
While this has been the first action taken against retail or hobby investors in the space, it most certainly won’t be the last. And while the IRS has been quite friendly in this series of letters, they might show up at your doorstep at some point as well. And while the letter was surely the “good-cop” IRS, if they have to calculate your gains, they’re surely going to switch to being the bad cop.
So the same holds true for you who haven’t yet received a letter. Unless you have nothing to do with crypto — which I highly doubt if you’ve come this far in this article — or you have already declared your taxes correctly, you should also start reporting.
What Happens Now?
We expect that this series of letters was more of a Harry-Potter-receives-Hogwarts-letters-kind of deal. Something that TV-lawyers would call a “fishing expedition”. Getting their feet wet. Warm-up. Practice. You get the point…
And I’m sure that a lot of people who received such a letter will do the sensible thing: pay their taxes.
But for everyone who hasn’t yet, consider this to be a warning shot. Because it’s not just the mailman from the 1981 movie that knocks twice — the IRS is sure to come back for more.