IRS Is Hunting Cryptocurrency Traders With Warning & Action Letters

The latest cryptocurrency news put the Internal Revenue Service (IRS) in the focus. According to reports, the IRS is hunting suspected cryptocurrency holders and traders who may have misreported digital assets on their tax returns. As the sources show, there have been more than 10,000 warning and action letter sent by the authority.

Letters such as the 6174-A, 6173 and CP2000 have all appeared in the mailboxes of many cryptocurrency traders all around the United States. A lot of crypto tax software companies are also on the hunt list – and have seen an influx of customers coming to them for tax help out of fear of penalties.

As many best cryptocurrency news sites showed, the main problem and reason why IRS is hunting traders is the misreporting of their documents. However, traders claim that the authority does not have all of the necessary information – and that the information they have is extremely misleading.

For those of you who don’t follow our Bitcoin and altcoin news, cryptocurrencies like Bitcoin in the US are treated as a property from a tax perspective – and not a currency. Just like many other forms of property (stocks, bonds, real estate etc.) the capital gains and losses are incurred on the bills.

It also doesn’t come as a surprise that a lot of traders are not paying taxes on their crypto activity. This is why the IRS is hunting traders – which is also why it makes sense to start out carrying out these enforcement campaigns.

In general, cryptocurrency users are constantly transferring crypto in and out of the exchanges. Therefore, the exchanges have no way of knowing how, when, where or at what cost the cryptocurrencies are acquired. They can only see what appears in the wallet on the specific platform.

The second a person transfers crypto in or out of an exchange is when the exchange loses the ability to give users an accurate report detailing the cost basis and the fair market value of the cryptocurrencies. Both of these aspects are mandatory components for tax reporting.

All in all, the IRS is hunting traders without all the information. So, if you receive a warning letter from the IRS, you should not panic. As long as you are properly filing your crypto gains and losses, you should be fine.