In a news release on July 26, 2019, the IRS announced that it was sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax. See IR-2019-132.
The announcement is an indication of increased IRS collection and enforcement activity in the area of virtual currency. The IRS recently received information about approximately 13,000 taxpayers with virtual currency transactions through a subpoena of the virtual currency exchange, Coinbase. The IRS expects to send letters to more than 10,000 taxpayers by the end of August.
For taxpayers receiving a letter from the IRS, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A. The IRS has previously released Notice 2014-21, which explains that the IRS treats virtual currency as property for federal tax purposes, and discusses the tax treatment of the sale or exchange of virtual currency and mining operations.
The news release also states that taxpayers who do not properly report the income tax consequences of virtual currency transactions may be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.