I recently published the article “IRS Bitcoin Letter? How to Report Bitcoin to the IRS” and want to share some helpful tips on how to address Bitcoin letters from the IRS. To provide a quick background, the IRS began sending out letters to approximately 10,000 taxpayers last month requesting that they review the reporting of their Bitcoin and other cryptocurrency transactions on their tax returns. The number of letters to be issued is expected to grow as the IRS ramps up their enforcement efforts in this area. Below are some steps for how to address IRS Bitcoin letters.
- Step #1: Make a plan to respond to the IRS by the date requested on the notice. Ignoring the notice will result in additional headaches and heartaches as well as the potential for an unexpected tax bill plus penalties and interest.
- Step #2: Obtain records of all cryptocurrency transactions made for each year in question. A great starting point is to login into the cryptocurrency exchange (i.e., Coinbase, Binance, etc.) used for transactions and export your historical data. Caution: The reports generated by the exchanges may not be accurate for tax reporting purposes.
- Step #3: Obtain records from all financial intuitions used to fund the purchase of Bitcoin or other cryptocurrency.
- Step #4: Calculate the value of each unit of cryptocurrency before each trade and compare it to the value of the unit after the trade to determine the reportable gain or loss. You will need to do this for each transaction.
- Step #5: File an amended IRS tax return to reflect the information from Step #4. Specific forms used to report the amended returns will vary per taxpayer.
- Step #6: File an amended state income tax return, if applicable. Many state tax agencies, such as the North Carolina Department of Revenue (NCDOR), will undoubtedly be looking to get their share of taxes on previously unreported Bitcoin and other cryptocurrency income. The IRS and many, if not all, states do share information with each other.
Referenced Article Link: https://laurenmassie.com/irs-bitcoin-letter/
About the Author:
Lauren Massie, CPA, EA, MBA resides in Raleigh, North Carolina. The primary focus of her CPA practice is income tax representation for individuals who need tax help with the IRS or the North Carolina Department of Revenue. She regularly assists clients with issues such as tax liens, unfiled tax returns, back taxes, wage garnishments, bank levies, installment agreements, and the filing of an Offer in Compromise to settle tax debts. Have questions? Lauren can be reached directly at (919) 792-8511 or through this link.
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Lauren Massie, CPA, PLLC
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Raleigh, NC 27615
Lauren Massie, CPA, PLLC is based in Raleigh, North Carolina and serves clients throughout the Greater Triangle Area including cities such as Wake Forest, Durham, Cary, Chapel Hill, Morrisville, Holly Springs, Fuquay-Varina, Clayton, Louisburg, Knightdale, Zebulon, Rolesville, Wendell, Hillsborough, Youngsville, Franklinton, Garner, Zebulon, Henderson, Franklinton, Holly Springs, Creedmoor, and Angier.