Formosan Brothers

Cryptocurrency Holders be Warned! The IRS is Coming After You!

2019/08/02

On July 26 2019, the Internal Revenue Service (IRS) has issued a news release (IR-2019-132) on its official website regarding it has begun 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 accurately.

In the news release, quoting the IRS Commissioner Chuck Retting, “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties” and “the IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations." 

By the end of August, more than 10,000 taxpayers will receive an educational letter issued by IRS. For taxpayers who received an educational letter, there are three versions: Letter 6173, Letter 6174 or Letter 6174-A, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors. 

IRS also reminded the taxpayers that the IRS would remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations. Moreover, the virtual currency is an ongoing focus area for IRS Criminal Investigation. Thus, we would like to remind you that the threats to bust cryptocurrency holders for tax evasion should be taken seriously.

From our point of view, if you receive the IRS Letter 6173, which means either the IRS might know there is unreported income based on tax information obtained through enforcement actions, which include the summons against U.S. Coinbase customers or because you did not file an accurate tax return, which should have included virtual currency transactions. A cryptocurrency holder must reply to this tax notice by submitting a correct late tax return or an amended return. Therefore, if you disagree with the IRS, the letter requires a full explanation with a signed statement declared under penalties of perjury.  

In addition, we consider Letter 6173 is a severe tax notice, and you should not get yourself into additional trouble with an incorrect reply. In some cases, perjury could be a felony. The IRS is very determined to get the cryptocurrency holders to pay their share of taxes just as the IRS has collected $11.1 billion from more than 56,000 American who voluntarily confessed to dodging taxes through offshore bank accounts over the previous decade. 

Since Taiwan is also a signatory to the FATCA agreement, if you are a Green-card holder or a Taiwan-U.S. dual citizen that involves in Cryptocurrency trading and have bank accounts in Taiwan, the failure to reply to such notice may result in bank account freezing, suspending or even canceling your account. Thus, if you have significant amounts of money in Taiwan’s bank and yet in compliance after you receive the IRS letter, you shall get in contact with IRS voluntarily in order to get into compliance quickly and safely. The IRS has occasionally shown leniency if taxpayers cooperate with its general voluntary disclosure program. 

If you have received one of the above-mentioned IRS letters, please contact Formosan Brother Attorney at Law, we are happy to assist you in resolving such issue and remain in compliance with the IRS tax law. 

(Author: Pei-Yuan Wei Legal Consultant)

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