IRS Sending Warning Letters to More Than 10,000 Cryptocurrency Holders

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In the letters, tax officials warned about penalties for failing to report income and pay tax on transactions involving virtual currencies.


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The Internal Revenue Service has begun sending letters to more than 10,000 cryptocurrency holders, warning about penalties for failing to report income and pay tax on transactions involving virtual currencies.

The agency expects its mailing to be completed by the end of August. It is sending three variations of one letter, depending on the information it has about the recipient.

“Taxpayers should take these letters very seriously. The IRS is expanding efforts involving virtual currency, including increased use of data analytics,” said IRS Commissioner Chuck Rettig.

An IRS spokesman declined to say whether the letters stem from information turned over by digital-currency platform Coinbase. In mid-March of 2018, Coinbase provided data—under a federal court order—on about 13,000 accounts requested by the IRS.

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One version of the letter recently uploaded to the IRS website asks recipients who believe they have followed the law to sign a statement declaring, under the penalty of perjury, that they are in compliance with tax rules. It also says the recipient should understand the IRS may be in touch with them.

In recent weeks, IRS criminal investigations chief Don Fort has announced that the agency is also building criminal tax-evasion cases involving cryptocurrency that are expected to be made public soon.

The Coinbase customers whose information was turned over bought, sold, sent or received digital currency worth $20,000 or more between 2013 and 2015.

For federal tax purposes, cryptocurrencies such as bitcoin are treated as investment property akin to stock shares or real estate.

In an original WSJ documentary, markets reporter Steven Russolillo ventures to Japan and Hong Kong to explore the universe of cryptocurrencies. His mission: create WSJCoin, a virtual token for the newspaper industry. Image: Crystal Tai. Video: Clément Bürge

Write to Laura Saunders at laura.saunders@wsj.com

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