The sale or exchange of virtual currencies by individuals or companies, in addition to use in exchange for goods or services or as an investment, generally has tax consequences that may lead to tax obligations.
This month (August 2019), the Internal Revenue Service (IRS) began sending educational collection letters, titled “Reporting Virtual Currency Transactions”, to taxpayers who have failed to report or misreported virtual currency transactions.
Taxpayer names were obtained from an ongoing IRS compliance investigation. In an official note, the IRS stated that more than 10,000 letters will be sent by the end of August. Those who receive the correspondence must “review their tax records and, if necessary, amend the previous records and pay back taxes, interest and penalties”.
In 2018, the IRS announced a Virtual Currency Compliance Campaign to address fiscal non-compliance related to the use of virtual currency through taxpayer analysis. According to the agency, the goal is to ensure compliance with the law and help taxpayers understand and comply with their tax obligations. Additional legal advice in this area will be issued shortly, according to the IRS.
The letters present clarifications about taxpayer reports and tax payments and how to correct past mistakes. They were sent in three versions. These correspondences direct its recipients to information and resources available on the IRS official website, such as forms and schedules to be used to ensure compliance with their obligations. Depending on the version of the letter received, the actions to be taken by the recipient may vary:
- Letter 6173 necessarily requires an answer. This letter states that the IRS has information indicating that the taxpayer has or had at least one virtual currency and has failed to declare one or more cryptocurrency transactions in the fiscal years 2013 to 2017.
- Letter 6174 only provides information to taxpayers who may not know the requirements for declaring cryptocurrency transactions and states that the IRS has analyzed that the recipient has or had one or more accounts involving cryptocurrencies. This letter does not necessarily require an answer.
- Similarly, Letter 6174-A alerts taxpayers about filing requirements and dates, and notes that the IRS holds information about purchasing or exchanging cryptocurrency attached to the recipient.
Taxpayers who do not report transactions correctly may be exposed to interest, penalties and taxes. In specific cases they may be tried in criminal proceedings.
Recently, the Brazilian Federal Revenue has also decided to adhere to regulations on cryptocurrency transactions. On July 11, 2019, the amendment to Normative Instruction no. 1,899/2019, has been published and established the discipline and the obligation to provide information related to the operations carried out with crypto-funds to the Special Secretariat of the Federal Revenue of Brazil (RFB).