As we blogged about recently, the IRS has employed a task force specifically to address crypto currency. Better said, they are now searching for persons that have failed to report virtual currency on their tax returns.
How we got to this point is the subject of another article, however, if millions of people traded and only a few hundred reported, you better believe the IRS will start to crack down on this behavior. Why did so many people decide to keep their crypto off their return? Part of it was misinformation circling on the internet. You can read about it in our articles mentioned above.
Now that we are at this point, the IRS hired the same agent that took down the silk road to now investigate crypto currency and hunt out persons who did not report it.
You may have received any one of three letters: 6174, 6174-A, and 6173. They all essentially mean the same – you should amend your return immediately. You can stop reading now & just contact us to get this amendment over with. We file hundreds of amendments annually and will make the process painless.
However, if you are curious, you can read on:
This is a basic informative letter explaining ones duty to report capital gains/loss transactions. Some call this a “soft notice,” but it is anything but. If you have been flagged, you must get this situation sorted out right away. Fortunately, correcting this is not as complex as it may seem, even if you traded on dozens of exchanges, had millions of transactions, and/or even traded on exchanges that are now defunct (or to which you have lost access). We have a streamlined process on how to respond to this notice appropriately.
This letter has a stronger tone and urges immediate compliance. The same applies as all three. How did the IRS obtain this information? There are a variety of means, some of which are explained in our brief history. However, the takeaway here is that you must get to work on amending (or filing) your prior year returns right away.
This letter lets you know directly that the IRS will be expecting a response. Some questions arise:
Will I be penalized? This depends on the amount of understatement. The IRS has the right to issue substantial understatement penalties, gross negligence penalties, and where substantial income is hidden (over $500,000), tax fraud. It is very important to get ahead of enforcement action by complying immediately. Each taxpayer is allowed to argue several exclusions/exceptions to compliance, which we will attempt to use in your case.
How much will I be penalized? This is 20%, in most cases. However, if you act quickly and make a reasonable attempt to report the correct tax, the IRS typically will not assess the substantial understatement penalty. The same applies for the gross negligence penalty.
What defenses do I have? Common ones that we use are the first time exemption and the reasonable cause exclusions. Contact us below and we will explain in detail how this is done.