The United States Internal Revenue Services (IRS) are sending fresh notices to cryptocurrency investors, seeking a declaration for their investments.
As posted by many Reddit and other social media users, the new tax department is warning letters are dated August 14, meaning they were just sent out.
Although there is a huge debate over taxing the incomes from the digital currencies, the tax watchdog is currently taxing them as property.
The IRS first introduced the disclosure question about cryptocurrency investments in its draft 1040 form last year. This year too, that question remains clear.
“At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency,” the 2020 draft of 1040 form asks potential taxpayers.
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Unlike other assets, cryptocurrencies are for the most part unregulated, but many Americans’ interest in the space to earn quick profits has also attracted the attention of the tax office. Furthermore, to tax this properly, the tax office has compelled major US crypto exchanges including Coinbase to send user data to them.
The IRS Needs a Proper Crypto Taxation Framework
The US tax department first sent warning letters in 2019 to over 10,000 cryptocurrency users. Many crypto users speculated that these are among the 13,000 users of the Coinbase exchange.
Notably, these warnings were categorized into three variations, IRS Letter 6173, IRS Letter 6174, IRS Letter 6174-A. Though the last two are inaction letters, Letter 6173 is a serious one. People receiving it must respond to it, otherwise, they might face an inquiry on their tax profile.
Also, to audit crypto earnings, the IRS has been looking for contractors to access the gains and losses from virtual currency tradings.
Meanwhile, the IRS is working on bringing proper tax regulations for crypto trades. Earlier this year, it even discussed the provisions with many crypto companies.