When cryptocurrency first came about, it was mainly underground. Now, it’s become more popular, the government has started taking an interest. What does this mean for cryptocurrency users? Regulation is here and there’s no escaping the IRS.
In the past, cryptocurrency holders have avoided paying taxes on their crypto because many mistakenly believed that it wasn’t taxable. That just isn’t true, and in 2014, the IRS came out with a set of guidelines regarding crypto taxation. Despite this, most tax professionals didn’t know how to deal with cryptocurrency, and crypto users ignored the government’s lax enforcement. Unfortunately for them, Uncle Sam wasn’t going to turn a blind eye forever. In fact, as time went by, the IRS set its sights on the crypto community.
In the summer of 2019, the IRS sent out more than 10,000 warning letters to cryptocurrency users. In these letters, the government asked crypto holders to review and amend past returns as well as pay any back taxes owed. Another letter was also sent with proposed changes to crypto users’ prior tax returns. This letter had to be addressed within 30 days or a Notice of Deficiency would be issued, and then a final bill would be sent.
Along with these letters, the IRS said that they would be issuing guidance for crypto tax professionals. This week, it came in the form of Revenue Ruling 2019-24 and updated frequently asked questions. And now, the IRS has made another surprising move. It just issued a second draft of the 2019 Form 1040, Schedule 1, a form every taxpayer completes, and the first question on the form related to cryptocurrency: At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?
By adding a question about virtual currency to the most widely-used tax form, the IRS has made it clear that it is going to continue to focus on enforcing crypto taxes and collecting what the government is owed.