IRS Finds Discrepancies In Crypto Holders’ Tax Returns

IRS issues warning letters to crypto holders

The Internal Revenue Service has issued another warning to cryptocurrency investors with federal returns that don’t match the information received from virtual currency exchanges.

Bloomberg reported that in letters to the investors, the agency did acknowledge that the trading exchanges may have made the errors.

Last month it was revealed that the IRS was sending letters to about 10,000 cryptocurrency holders warning them about the penalties they will face if they don’t report their income or pay taxes on the transactions. There are three versions of the letters,  with one version asking taxpayers who think they have followed the law to sign a statement saying as much under the penalty of perjury.

“Taxpayers should take these letters very seriously. The IRS is expanding efforts involving virtual currency, including increased use of data analytics,” said IRS Commissioner Chuck Rettig.

Accountants have reported that their clients have been receiving letters in recent weeks. And a message on the agency’s website reads: “We received information from a third party (such as employers or financial institutions) that doesn’t match the information you reported on your tax return,” adding that “this discrepancy may cause an increase or decrease in your tax, or may not change it at all.”

This latest round of letters are “unusual, because they are targeting a class of investors,” said Timothy Speiss of EisnerAmper LLP’s personal wealth advisers practice. “The first volume of letters I call ‘warning’ letters. Now it’s the IRS saying, we’ve got the records.”

An anonymous spokesman for the IRS said that the latest letters will go out when the agency finds a discrepancy between the trading profits or losses that taxpayers report on their returns and what third parties report to the IRS. It is unknown how many investors received this latest letter, but the source said they usually are sent one or two years after a taxpayer has filed a return.