Cryptocurrency might be a challenge to the primacy of the U.S. dollar, but that’s not stopping the Internal Revenue Service from wanting a piece of the action.
The IRS announced Friday that it was sending letters to 10,000 cryptocurrency holders informing them that they needed to report, and pay taxes on, their crypto transactions and capital gains.
“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,” Chuck Rettig, IRS Commissioner, said in a statement. “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.”
The letters don’t mean that the government is recognizing Bitcoin or other virtual currencies as a form of money. Rather, people are making money buying and selling cryptocurrency as a commodity. And if people are making money by trading and acquiring something — even a virtual something — the IRS sees that as taxable income.
That isn’t a surprising position, but it does stand in contrast to some highly public inflammatory statements President Trump made about cryptocurrency recently.
After Facebook announced the creation of its virtual money, Libra, Trump sent out a tweetstorm denouncing the move, and cryptocurrency as a whole.
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” Trump tweeted in July.
He went on to criticize Libra, and tell Facebook that it needed to register as a bank and follow banking law if it intended to dispense money. Trump ended his anti-crypto PSA by touting the United States dollar, “by far the most dominant currency anywhere in the World.”
Even if Trump is negging on crypto, the IRS apparently can’t ignore the booming trading market. According to the Wall Street Journal, the agency got information on cryptocurrency traders from Coinbase.
The Journal also pointed out that following the letters’ instructions might prove challenging. Coinbase does not provide users with a record of all transactions, so a Coinbase user might not even have the information the government is requesting for tax purposes.
Despite these challenges, the letters make it clear that the market is not going to exist outside of the U.S. tax agency’s purview any longer.
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