The Internal Revenue Service of the United States (IRS) reminded taxpayers of the need to include in the annual declarations any income in bitcoin and other cryptocurrencies, CoinDesk writes.
In a report published on Friday, March 22, the IRS notes that cryptocurrency transactions are subject to declaration, like any other types of property.
For the first time, the IRS announced the intention to levy cryptocurrencies with taxes in 2014, stating that the profits and losses on operations with digital currencies, if the latter are used as non-current assets, will be regarded as capital gains. Also salaries paid by employees in cryptocurrencies are subject to taxation, while cryptocurrency payments in favor of independent contractors and service providers must be entered in Form 1099.
In its latest report, the IRS explained its position, stating that cryptocurrency payments should be reflected in tax returns.
“Payments made with the help of a virtual currency are subject to the information report to the same extent as any other payments using the property,” the document says.
Also, the agency noted that taxpayers who do not properly declare the tax consequences of cryptocurrency transactions may be subjected to an audit procedure and, if necessary, incur administrative liability in the form of fines. In particularly “extreme situations”, it may be criminal liability for tax evasion, which involves up to 5 years in prison and a fine of $ 250,000.
Users who include knowingly false information in a tax return may face up to 3 years in prison and still have the same fine of $ 250,000.
As the agency notes, “some taxpayers may be tempted to withhold from the IRS taxable income.”
As previously reported, the IRS has been using special tools to track bitcoin users since the end of 2015. To this end, the agency purchased software from the security-focused Chainalysis company to identify users.