February 2020: Cryptocurrency

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Virtual Currency Transactions And The IRS

What You Need to Know

The IRS has begun sending letters to taxpayers as part of their Virtual Currency Compliance campaign. As of late August 2018, over 10,000 letters had been sent to taxpayers who had investments in virtual currency, such as bitcoin. This is just the start of the virtual currency enforcement activities to come according to the IRS – increased audits and criminal investigations are also expected.
There are three variations of the IRS letters: Letter 6173, Letter 6174, and Letter 6174-A. These letters are generally educational in nature, and strive to help the taxpayer understand their tax and filing obligations and how to correct past errors. Some letters may require a response. If you receive a letter from the IRS regarding virtual currency and are not sure if any action needs to be taken, we would be happy to review the notice and respond if necessary.
Guidance for virtual currency treatment has traditionally been found at IRS Notice 2014-21. For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Taxpayers are required to determine the fair market value of the virtual currency in U.S. dollars as of the date of payment or receipt and use this information to calculate gain or loss when virtual currency is later sold.
The IRS released additional guidance at Revenue Ruling 2019-24 on October 9, 2019. The new revenue ruling goes into further detail on issues facing virtual currency owners. Specifically, this revenue ruling addresses the treatment of virtual currency income as a result of a “hard fork” or “airdrop.” The general rule is that income is recognized if the taxpayer receives units of a new virtual currency following one of these events.
This new revenue ruling demonstrates the complicated nature of virtual currency transactions. If you have any questions on the tax implications of owning virtual currency, or if you have questions about your specific virtual currency transactions, please let us know. The virtual currency will be under increased scrutiny by the IRS in the years to come, and we can help you stay in compliance.

Isabelle C. Barton

Employee Spotlight | Isabelle C. Barton

Isabelle joined the Soukup, Bush & Associates team in July of 2019. She grew up in Maine, where she received her Bachelor of Liberal Arts degree in History from the University of Maine. She currently assists with all aspects of administrative management as well as processing both individual and corporate income tax returns.

In her spare time, Isabelle enjoys running, outdoor activities, and reading. Most importantly, she loves spending time with her dog, Mel.

Important Deadlines

February 24, 2020 – Please provide all documents and required information for partnership and S-corporation tax returns by February 24, 2020. In order to provide our best service, your tax return will be extended and completed after April 15, 2020, if there is still outstanding information needed by February 24, 2020.

Please Note: extended business returns will be prepared after the individual filing deadline, April 15, 2020. Thus, we will also be filing an extension for your individual return if we extend your business return.

February 28, 2020 – Forms 1099 and Form 1096 must be filed with the IRS for all payments other than non-employee compensation if the form is paper-filed with the IRS.

March 16, 2020 – Federal and state income tax returns are due for flow-through entities, including partnerships and S-Corporations.

March 23, 2020 – Please provide all documents and required information for individual and C-corporation tax returns by March 23, 2020. In order to provide our best service, your tax return will be extended and completed after April 15, 2020, if there is still outstanding information needed by March 23, 2020.

March 31, 2020 – Forms 1099 and Form 1096 must be filed with the IRS for all payments other than non-employee compensation if the form is electronically filed with the IRS.

April 15, 2020 – Federal and state income tax returns are due for individual taxpayers, C-Corporations, and Estates and Trusts.