IRS targeting “virtual currency” traders

IRS targeting “virtual currency” traders

Do you trade in virtual currency? Do you know that gains from such trades are taxable? The IRS takes the position that virtual currency must be treated like any other property for tax purposes. For example, if you purchase virtual currency for, say, $1,000, and sell it at $1,500, you have a capital gain of $500. On the IRS’s latest list of those to be scrutinized are owners of virtual currency. The agency intends wholesale audits to assess taxes and penalties for those who haven’t properly reported. You might ask how the IRS will find taxpayers who trade in virtual currency. The answer is that in 2016, a federal court in California authorized the use of a “John Doe” summons by the IRS against Coinbase, Inc. Coinbase is the virtual currency transaction hub. As the IRS harvests information through its summons, it will identify U.S. citizens who traded in virtual currency. They will be targeted for audit. This is exactly how the IRS got access to thousands of U.S. citizens using Swiss bank accounts to hide income and assets. That wall of privacy crumbled and I expect the virtual currency shroud to be torn asunder in like fashion. For help, see my book How to Win Your Tax Audit.