What to Do if You Receive an IRS Virtual Compliance Letter

 Posted on August 19, 2019 in Taxation Law

The Internal Revenue Service (IRS) has been sending letters to taxpayers who are involved in activities that use virtual currency to complete transactions. Though sent as educational notices, these letters may indicate that a person could be subject to a tax audit. Individuals or entities may receive this type of notice if they failed to report income or failed to pay taxes on virtual currency transactions. 

What Is Virtual Currency?

Virtual currency, also known as cryptocurrency, is a digital form of money that is issued and controlled by program developers. People may accept these currencies as a medium of exchange just like U.S. currency, or cryptocurrencies may be converted into cash or other forms of virtual currency. Virtual currency is deemed to be property for federal income tax purposes.

Virtual Currency IRS Notices Sent to Taxpayers

The IRS has been sending three types of notices to individuals or entities holding investments in cryptocurrency. These are:

• IRS Letter 6173, sent to those who have had one or more accounts containing virtual currency and who may not have met their U.S. tax filing requirements for transactions involving virtual currency.
• Letter 6174, sent to those who have had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency.
• IRS Letter 6174-A, sent to those who have had one or more accounts containing virtual currency but may not have properly reported transactions involving virtual currency.

What to Do if You Receive a Virtual Currency Notice

Each one of these letters lays out the actions that a recipient should take. Taxpayers are directed to IRS.gov for more guidance and information, including which forms and schedules to use and where to send them. However, it is important to note that virtual currency is an active focus area for IRS Criminal Investigation, and those who have not properly reported income from virtual currencies or paid taxes on transactions may be subject to an audit.

If you have received one of these letters, and you have reason to believe the IRS may want to examine your activities, then it is in your best interests to contact a tax attorney before talking to the government.

A San Francisco Bay Area Tax Lawyer Can Help

At John D. Teter Law Offices, we are familiar with how to handle virtual currency audits and the circumstances surrounding an audit. John D. Teter speaks the language of tax auditors and knows how to respond to their inquiries in ways that do not compromise his clients' rights. If you have received one of these virtual currency letters from the IRS, contact our San Jose tax lawyer to learn about the best way to respond to the IRS and meet your requirements. We will work to help you resolve your tax matter as efficiently and effectively as possible. Call our office today at 408-866-1810.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

https://www.forbes.com/sites/greatspeculations/2019/07/31/watch-out-cryptocurrency-owners-the-irs-is-on-the-hunt/#1c2385906990