IRS Enforcement: Cryptocurrency Transactions Target


Convertible Virtual Currency or CVCs which includes Bitcoin and other Cryptocurrencies are being held and traded by US citizen and taxpayers since 2014. The CVCs got the green light from the Internal Revenue Service or the IRS. The IRS in a recent press release issued a notice where it mentioned CVCs or convertible virtual currency should be considered as a property and a fiat currency. If any enthusiast uses CVCs as a medium of exchange for buying the property or to pay for services the transaction will be subject to deduction of taxes.  Any gain or loss that arises from the transaction that is the difference between the fair market value of the property or service into consideration and the taxpayer’s proceeds from the CVCs will also be taxable under the guidelines of Internal Revenue Service with the exception of certain section 1031 prior to 2018. Taxpayers would thus be required to track each transaction involving CVCs, determining the tax basis of the Convertible Virtual Currency involved, and the value of the property or services received, and report each transaction on their U.S.

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income tax return. In the case of a taxpayer who merely invests in Bitcoin and then held the investment with an occasional sale, the tax issues and reporting requirements is easy and straightforward. Taxpayers buying CVCs on a frequent basis, exchanging them for other types of CVCs, lent them to friends, invested in Initial Coin Offerings, received CVCs in “airdrops,” and held Convertible Virtual Currency long periods of time to receive additional CVCs is a “hard fork.

For taxpayer keeping their track of the gain and losses will prove to be a complicated matter if not more. In addition, many investors in CVCs who did not think a CVC as property and thus didn’t require the accounting and reporting expected by the IRS.

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Source: Accounting Today

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