You may need to amend your tax returns and pay additional taxes, penalties, and interest if you have previously unreported Bitcoin income. If you fail to take action, the IRS may audit your returns as part of its Virtual Currency Compliance campaign.
Key Insights We Will Discuss:
- How the IRS treats Bitcoin transactions for tax purposes
- What thee IRS is doing to increase virtual currency tax compliance
- What you should be doing to correct your past non-compliance with Bitcoin tax laws
Bitcoin Taxes 101
The IRS considers Bitcoin and other virtual currencies to be property for tax purposes. You need to pay taxes if you receive Bitcoin income, the same way you would need to pay taxes if someone paid you for your work by giving you a new car.
The property will be valued based on the currency’s exchange rate on the date you received the income. You can use any exchange rate listed on a public exchange as long as you consistently use the same method.
IRS Bitcoin Compliance
Because virtual currency tax treatment is a new area of tax law, the IRS is still trying to create rules and get taxpayers to comply with them. The IRS began sending out notices to taxpayers who may have Bitcoin income in the summer of 2019. These were not audit notices – they were merely meant to educate the taxpayer and inform them that they may need to take action.
Over time, you can expect the IRS to be less forgiving of taxpayers with unreported Bitcoin income. Taxpayers who don’t amend their returns to claim their Bitcoin income may be subject to tax audits tax audits, penalties, and even criminal penalties in some cases.
How to Correct Bitcoin Tax Problems
You can resolve your Bitcoin tax problems by following these steps:
- Consult a tax attorney to discuss your case and determine your tax resolution strategy
- File amended or delinquent returns as needed
- Determine the best way to pay your tax debt and penalties, which could include an installment agreement, Offer in Compromise, or penalty abatement
- Stay in compliance on all future virtual currency transactions
Contact a Tax Attorney
Get Help with Bitcoin tax problems by calling Ayar Law at 800.571.7175 to get free, no-obligation tax advice from a qualified and experienced tax attorney.
The IRS is stepping up its Bitcoin tax compliance efforts. Taxpayers with unreported Bitcoin income may be targeted for tax audits, penalty assessments, or criminal tax charges. You can stay one step ahead of the IRS by amending your tax returns and disclosing your previously unreported Bitcoin income.