U.S. Treasury Inspector General for Tax Administration Releases Report on Virtual Currencies Tax Compliance
As the use of virtual currencies in taxable transactions becomes more common, additional actions are needed to ensure taxpayer compliance. Alternative payment methods, such as convertible virtual currencies, have grown in popularity in recent years and have emerged for some people as a potential alternative to using traditional currencies like U.S. dollars. Virtual currencies offer potential benefits over traditional currencies, including lower transaction fees and faster transfer of funds for services provided. However, some virtual currencies are also popular because the identity of the parties involved is generally anonymous, leading to a greater possibility of their use in illegal transactions.
On 8 November 2016, the US Treasury Inspector General for Tax Administration (TIGTA) released a review report evaluating the IRS’s strategy for addressing income produced through virtual currencies. They also released about the tax software used for the tax compliance and reporting. The tax software released by them can be used by everyone including company as well as by the individual.
The report recommended that the IRS:
Develop a coordinated virtual currency strategy that includes outcome goals, a description of how the agency intends to achieve those goals, and an action plan with a timeline for implementation;
Provide updated guidance to reflect the necessary documentation requirements and tax treatments needed for the various uses of virtual currencies; and Revise third-party information reporting documents to identify the amounts of virtual currencies used in taxable transactions.
According to TIGTA, the IRS has agreed with the recommendations and plans to develop a virtual currency strategy, including an assessment of whether changes to information reporting documents are warranted, and to develop additional guidance.
If you are dealing with Bitcoin or other foreign currencies, you should make sure you are in compliance with all federal and state tax regulations. If you would like to review your personal situation, please contact us to schedule a free, no-obligation consultation.