By CCN Markets: U.S. citizens who have failed to report their income from crypto transactions or underreported such income now have every reason to worry.
According to Bloomberg, the Internal Revenue Service has identified a couple of taxpayers who underreported their earnings from crypto income or completely failed to report such earnings. Taxpayers who have been identified can now expect to receive notices in the near future.
The tax body employed its document matching program – a tool used on a mass scale to detect unreported or underreported income – to identify these individuals.
IRS audits of crypto owners underway
Additionally, the IRS is starting to undertake audits of taxpayers who hold crypto assets. Per the IRS commissioner for the Small Business/Self-Employed Division, Mary Beth Murphy, the tax body’s exam teams are now focusing on cryptocurrency-owning taxpayers:
In our exam operations, we’re starting to work those cases.
The Small Business/Self-Employed Division is coordinating with the Large Business and International Division in undertaking these audits.
The remarks by Murphy do not come as a surprise though. Just last week IRS investigator Gary Alford had warned crypto evaders of an impending crackdown as CCN reported. At the time, Alford cautioned that the IRS had kept up with technological advancements and is therefore in a better position to handle crypto tax cases.
Additionally, Alford noted that jury members were now more familiar with Bitcoin and other cryptocurrencies. This had consequently made the prosecution of crypto tax evasion cases much easier.
Sector growth calls for additional guidance
The increasing focus of the IRS on the crypto sector comes at a time when the tax body is preparing to publish additional guidance on the taxation of crypto assets. According to IRS Commissioner Charles P. Rettig, the need for a new guidance is driven by the fact that cryptocurrencies have evolved.
In a letter to the U.S. Congress last month Rettig noted that they are now used as a medium of exchange as well as an investment. This, therefore, called for additional guidance from a taxation perspective.
Currently, the IRS treats crypto as property not as a currency and taxes them as such. And in cases where a taxpayer receives payment for goods and/or services in a cryptocurrency, they are required to compute the fair market value of the particular crypto in determining the gross income. The fair market value must be in U.S. dollars as of the date the cryptocurrency payment was made.