IRS and the Coinbase Summons
In 2018, Coinbase handed over information on more than 14,000 account holders to the IRS.
Since that time, cryptocurrency traders have held their breath waiting for IRS enforcement. In June 2019, cryptocurrency traders are seeing the first step of that enforcement – IRS Letter 6174-A. This has all the hallmarks of a wide-ranging compliance initiative.
First, Letter 6174-A is issued by IRS offshore unit in Austin, Texas. The offshore unit spearheaded civil and criminal tax enforcement related to US Department of Justice Swiss Bank Program.
It did so by targeting taxpayers with unreported income and assets held by financial institutions previously outside the reach of US Regulators. The first step is to motivate voluntary compliance. That is exactly the aim of Letter 6174-A.
Second, Letter 6174-A discloses just enough to scare a taxpayer into action. It warns the taxpayer that the IRS has “information that [the taxpayer] didn’t accurately report virtual currency transactions on a federal tax return.”
This intentionally vague statement does not identify the information or even the relevant tax year. Rather, it simply informs the recipient that he or she can expect further scrutiny.
Every recipient receiving this letter would be well advised to determine cryptocurrency gains, reconcile those gains with previously filed tax returns and amend where needed.
Third, the letter forecasts “future civil and criminal enforcement activity.” Every recipient should anticipate an IRS audit in their future.
This is true for those that reported everything, nothing or some activity. And for those that knowingly and willfully failed to report income, criminal enforcement is in play. This is especially true for those taxpayers with notoriety or visibility in the space.
In short, this is the first step in a compliance initiative that will last for years. Any taxpayer receiving this letter needs to assess compliance, preserve supporting data and amend returns as necessary.
For more information visit our other posts on the subject IRS Letter 6174-A, Questions Every Recipient Should Be Asking and IRS: Altcoin Trading is Taxable Event.
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