- A large number of crypto holders in the United States have received letters from the IRS
- The letters threaten legal action if crypto income is not declared
- No cause for alarm, says crypto tax attorney, the letters are sent out en masse in a fishing expedition
One of the most complicated aspects of getting mainstream adoption for the cryptocurrency is figuring out its place within the existing and future tax systems that function across various countries, particularly the United States. While some countries have been able to create some more comprehensive crypto-related tax laws, the IRS has been repeatedly criticized for not being quick enough to adapt to the changing financial landscape.
Recently, letters were sent out by the IRS called the IRS letter 6174-A to taxpayers and this has created some anxiety among crypto holders as the letter allegedly threatens future civil and criminal enforcement activities if tax returns are not amended to properly report all cryptocurrency-related income. However, according to a July 26, 2019 report, this letter should not be a cause for concern among crypto holders.
No cause for alarm
According to the report, there are instructions in the letter regarding how cryptocurrency-related income can be reported and how tax return should be amended and this letter apparently is not being sent necessarily because the IRS believes that the individual is cheating on their taxes but it is being sent to most Coinbase customers.
The letter itself was analyzed by legal experts and it seems as though it is a generic mailing campaign to scare crypto holders and not a specific and direct letter towards any individual. Also, it was noted that the IRS typically does not give warnings to people if they are suspected of cheating on their taxes and instead this letter has the markings of a blanket mailing campaign to all individuals that the IRS knows has a crypto trading account as well as those who receive 1099 forms from US-based crypto trading platforms.
IRS blanket targeting Coinbase users
The author, who is a crypto tax attorney, also stated that several of his own clients have received the same letters and all their tax returns have been filed with regards to cryptocurrency and that even those who have reported all their income have received a letter.
As such, recipients of the letter are advised not to panic if they have accurately reported all their cryptocurrency earnings but it would still be a good idea to review their tax returns and make sure all crypto income is reported. The letter also states that no response is necessary if crypto-related income has already reported but if it has not been reported yet, the instructions in the letter should be adhered to and tax returns should be amended as soon as possible. This is, however, a sign that the IRS and other institutions are finally taking cryptocurrency seriously and this is a good indication for the future.