The IRS Form 1040 now includes a checkbox which taxpayers must address regarding virtual currency. The form asks taxpayers if “at any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The key question at hand is who is required to answer “Yes” and who may answer “No?” National Taxpayer Advocate Erin M. Collins addresses these and many other questions taxpayers have when it comes to virtual currency and their taxes.
Given the explosion in virtual currency, the IRS has increased its focus on virtual currency tax compliance. In 2019, the IRS sent letters to over 10,000 American taxpayers who may have failed to report their virtual currency transactions and pay the associated income taxes. The National Taxpayer Advocate says, “taxpayers should proceed with care in order to experience the benefits of virtual currency while avoiding its pitfalls.”
Collins provides her recommendations to the IRS on virtual currency. In advocacy of all taxpayers, she asserts, “Continuing to publish guidance and posting frequently asked questions will provide taxpayers the guidance they need to file correct tax returns and eliminate future controversies. As it is too late to amend the Form 1040 and instructions, my office continues to recommend the IRS reword the virtual currency question on the 1040 together with the instructions for the 2021 Form 1040, providing clear guidance for those taxpayers who purchased or acquired virtual currency during the tax year, but merely held the virtual currency, and those who did not conduct a taxable transaction.”
This blog post is intended to inform taxpayers about identified complexities and to raise questions needed to be addressed in reporting virtual currency transactions. Read the full NTA Blog from National Taxpayer Advocate for details on this emerging tax issue of cryptocurrency.
Thank you for continuing to help the Taxpayer Advocate Service spread this message.
Senior Public Affairs Specialist | TAS Communications, Stakeholder Liaison & Online Services | email@example.com |(470) 639-2391
Subscribe to TaxConnections Blog
Enter your email address to subscribe to this blog and receive notifications of new posts by email.