IRS tells taxpayers to report cryptocurrency transactions or face “HUGE” penalties.
The Internal Revenue Service issued a reminder Friday to taxpayers that they need to report any income they get from virtual currency transactions on their tax returns (as income).
The move comes after the IRS forced one of the largest cryptocurrency exchanges in the world, Coinbase, to send information on 13,000 of its users to the IRS last month after a protracted legal battle involving the use of John Doe summonses. That means people who have engaged in transactions involving Bitcoin, Ethereum and other digital currencies are expected to report them to the IRS in the next few weeks.
The IRS warned Friday that taxpayers who don’t properly report the income tax consequences of their crypto-currency transactions face the possibility of tax audits, and they could even be liable for paying penalties and interest when appropriate. In more extreme situations, taxpayers might even be subject to “Legal Criminal Prosecution” for failing to properly report the income tax consequences of virtual currency transactions, the IRS noted.
“Criminal charges could include tax evasion and filing a false tax return,” said the IRS.
“Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.”