Yet again, IRS, The Internal Revenue Service posted a reminder for the public that, income from cryptocurrency is reportable on their income tax returns. The United States’ tax collection agency cited on their website that the law treats transaction of virtual currencies or digital currencies as any other property-based transactions. Taxpayers and tax preparers should keep that in mind and abide by the rules laid out in the IRS Notice 2014-21.
The tax collection agency dutifully reminded people about the penalties that can result from improper tax filings: “who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.”
The IRS also understands the difficulties involved with tracing cryptocurrency transactions and thus stated, “There are currently more than 1,500 known virtual currencies. Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.” They followed it up with a warning: “anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.”
Furthermore, IRS has explicitly cited that they acknowledge digital currencies as a property as well as a currency. “Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency,” the agency noted, along with citing “Notice 2014-21 [which] provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency.”