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20 February 2020

Crypto Tax Reporting Failures Can Be Expensive, Even Criminal

Crypto Tax Reporting Failures Can Be Expensive, Even Criminal


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Taxpayers may think they will not be caught, and many Coinbase users may have thought their information would be protected until the John Doe summons proved otherwise.

Taxpayers may think that the IRS could penalize them but might assume that they do not need to worry about any criminal implications. .

The IRS’s guidance from 2014 (Notice 2014-21) states that cryptocurrency is not currency for tax purposes, and rather that it is property.

As property, taxpayers must know when they bought the cryptocurrency, how much they paid and what they received for it. .

The IRS’s FAQs state that all income, gain or loss involving virtual currency must be reported regardless of the amount or if you received a Form W-2 or 1099.

The IRS guidance indicates that basis is determined by the fair market value of the virtual currency, in U.S.

However, if the taxpayer received the virtual currency through peer-to-peer transactions, or if the cryptocurrency itself does not have a published value, it can be considerably messier.

The IRS still requires taxpayers to use some reasonable method to value the cryptocurrency and to establish that such value is accurate. .

For one, they may have trouble deciphering exactly when they received the mined cryptocurrency for purposes of determining its value for reporting purposes.

The IRS guidance says that taxpayers must use a reasonable method to determine the fair market value used to determine gain or loss. .

Taxpayers using cryptocurrency for small purchases could have multiple small reportable gains and losses that must be recorded, reported and accounted for over the course of the year. .

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