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IRS Announces No Voluntary Disclosure Program for Cryptocurrency

Posted on in Taxation Law

San Jose virtual currency tax attorneyThe Internal Revenue Service (IRS) has no plans to create a voluntary disclosure program for virtual currency similar to what has previously been offered for undisclosed foreign assets, an agency official recently said in a speech at a tax symposium.

In 2014, the IRS stated that cryptocurrencies such as Bitcoin that could be converted to traditional currencies are considered property for the purposes of taxation. Thus, a person may experience a gain or a loss when selling or exchanging cryptocurrency based on the value of the cryptocurrency at the time of the exchange. 

Because cryptocurrencies are classified as property, general taxation rules of property will apply. The sale of cryptocurrencies, the use of them to purchase goods or services, or retaining the cryptocurrencies for investment purposes generally have tax consequences, which may mean taxes will be owed.

In addition, the IRS warned that failing to properly report can result in penalties and interest. If the amount concerned is large, criminal charges such as tax evasion or filing a false return may result. 

What Cryptocurrency Transactions Must Be Reported to the IRS?

There are several situations in which a virtual currency transaction needs to be reported, including:

  • Payment of cryptocurrency to a worker for salary or wages. Here, employment taxes must be paid, and the worker must report the cryptocurrency as income. There is also a reporting requirement for self-employed taxpayers who are being paid in cryptocurrency for services rendered.
  • Cryptocurrency paid to businesses for goods or services should be reported as ordinary business income.
  • Gain from the sale of a property in exchange for cryptocurrency must be reported as capital gain if this property is held as a capital asset.
  • Payments made using a cryptocurrency must follow the same reporting requirements that govern real currency.

Contact a San Jose, CA Cryptocurrency Tax Lawyer

If you own or have used cryptocurrencies, it is assumed by the government that you understand the tax issues surrounding them. Cryptocurrencies are a relatively new creation, and they have only achieved popularity in recent years. Thus, the law regarding cryptocurrencies is not well-developed. While there are certain tax laws that have been established, there are novel situations that are not clearly covered by existing law.

Because of these circumstances, seeking out professional legal and tax counsel is warranted. Our firm remains abreast of the legal developments surrounding cryptocurrency, and we can assist you with your questions. Contact the diligent San Jose, CA tax law attorney at the John D. Teter Law Offices by calling 408-866-1810 today.

Sources:

https://www.law360.com/articles/1100328

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