• LinkedIn Social Icon
  • Facebook Social Icon
  • Twitter Social Icon
  • alignable_square
  • Yelp Social Icon
  • avvo
  • Justia-Icon
  • lawyer_com favicon
  • taxbuzz
  • ptin-seal
  • 170927-usnsquarelogo-design
  • favicon-32x32
  • mail icon

Law Office of James D. Lynch, PLLC

3000 Joe Dimaggio Blvd #90, Round Rock, TX 78665

info@jimlynchlaw.com

(512) 745-6347

(714) 745-3875

©2020 by Law Office of James D. Lynch, PLLC. The information contained in this website is for informational purposes and is not to be considered legal advice.  Any correspondence between you and the Law Office of James D. Lynch is not intended to create an attorney-client relationship.  Please do not send confidential information to us until after an attorney-client relationship has been established by an engagement letter signed by the proposed client and our attorney.

  • James D. Lynch

IRS Has Begun Sending Letters to Virtual Currency Owners

The Internal Revenue Service is sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. This is a part of the IRS’s larger efforts of educating virtual currency owners about the tax implications and, if necessary, advising them to pay back taxes and file amended returns.


IRS Notice 2014-21 (https://www.irs.gov/pub/irs-drop/n-14-21.pdf) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. ● Taxpayers who receive virtual currency as payment for goods or services must include the fair market value of the virtual currency in computing gross income. ● When a taxpayer exchanges virtual currency for other property (even if it’s another virtual currency), the taxpayer has taxable gain if the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency. ● Virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes and are subject to federal income tax withholding, FICA, and FUTA taxes, and must be reported on Form W-2. ● Virtual currency received by an independent contractor for performing services constitutes self-employment income.


Taxpayers who do not properly report the income tax consequences of virtual currency transactions are liable for the back taxes as well as penalties and interest. Taxpayers who willfully attempt to defraud the IRS could also be subject to criminal prosecution.