Cryptocurrency, the thrilling world of innovation and financial opportunities, holds a hidden challenge—tax obligations. As the Internal Revenue Service (IRS) sharpens its focus due to a staggering 75% non-compliance rate in cryptocurrency reporting, investors and enthusiasts find themselves navigating treacherous waters. In this guide, we unveil the complexities of tax notices, offering insights and steps to ensure your compliance and peace of mind.
Cryptocurrency tax notices revolve around underreporting or non-reporting assets. The three main notices—6173, 6174, and 6174A—each carry unique implications, requiring different responses.
These notices are primarily informational, informing you of on-chain cryptocurrency transactions. No immediate action is needed; they suggest filing amended returns if discrepancies arise.
Unlike the informational notices, a 6174 notice demands a timely response. Failure to address it promptly may lead to escalated tax notices, emphasizing the need for a careful review.
When faced with a tax notice, take these steps to navigate the complexities and ensure compliance:
Upon receiving a tax notice, your first move is to reach out to a Certified Public Accountant (CPA) experienced in cryptocurrency taxes. They guide you through the necessary steps.
Collaborate with your CPA to review the notice thoroughly. Identify the type of notice and determine the appropriate response based on your circumstances.
Adjust your cryptocurrency accounting based on the notice. Work closely with your CPA for accuracy, proper documentation, and diligence in reporting.
After analyzing the notice, amend prior year tax returns or file delinquent returns. Bringing filings up to date is crucial to rectify any omissions related to cryptocurrency transactions.
If a response is necessary, work with your CPA to craft a tailored and thoughtful reply. Responses vary based on circumstances, ensuring a professional and effective response.
Not all tax notices are punitive; some serve an educational purpose. The IRS aims to increase overall tax compliance, sending letters to both compliant and potentially non-compliant taxpayers, and educating them about reporting obligations in the cryptocurrency space.
