Cryptocurrency is considered property

Cryptocurrency, also known as virtual currency or digital currency, is characterized as property for federal tax purposes, according to the main IRS pronouncement on the topic. Gain or activity in digital currency will be taxable either as capital gains or ordinary income, depending on the transaction. In addition, there may be times when an informational return must be filed such as to report a like exchange. The IRS in its latest release says that failure to properly report virtual currency activity may result in an audit and potentially civil penalties and interest. The release says that in extreme circumstances, the taxpayer may even be exposed to criminal liability for tax crimes like filing a false return or tax evasion. These offenses can carry significant prison time and up to $250,000 in fines. Liability applies to MICRO-CAPTIVES as well. The IRS said Thursday it will be sending settlement offers with terms that are stricter than ones it offered last year under an earlier micro-captive initiative. The IRS has been focusing on cracking down on certain types of tax avoidance schemes, such as syndicated conservation easements and micro-captive insurance, while also stepping up tax enforcement efforts against holders of digital currencies such as Bitcoin and Ethereum, despite a decreasing number of IRS audits overall in recent years. The crackdown isn’t entirely new. In 2016, the Treasury Department and the IRS issued Notice 2016-66, which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. Google Lance Wallach and your advisor. Who do YOU think knows more? vebaplan@gmail.com for help before the IRS takes everything from YOU. Lance Wallach 516-236-8440