IRS Notifying Owners Of Virtual Currency To Report Transactions

The IRS has recently began sending letters to certain owners of virtual currency (e.g., Bitcoin, Ether, etc.) regarding requirements for reporting transactions involving such virtual currencies. See IRS Information Release 2019-132. The IRS is concerned that taxpayers have been entering into virtual currency transactions and failing to properly report them. The letters are an offshoot of the IRS' Virtual Currency Compliance program launched in 2018. The names of the taxpayers that will be receiving the letter were obtained by the IRS through its efforts as part of this program.

In Notice 2014-21, the IRS determined that virtual currency is considered "property", and not currency, for federal income tax purposes. Taxpayers are generally required to report all sales and other dispositions of virtual currency, which includes the use of virtual currency to pay for goods, services or other property. This means that any sale, exchange or other disposition of virtual