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Victor Jaramillo and Zhanna Ziering Talk to Law360 on IRS Cryptocurrency Letter Recipients

August 9, 2019, Law360

The Internal Revenue Service has started mailing letters to cryptocurrency users warning them they could face penalties or worse if they don't properly report transactions and pay taxes on them, and recipients should consider their options before acting in response.

. . .

But there is no one-size-fits-all approach to what to do if a client receives a letter, according to Victor A. Jaramillo, at Caplin & Drysdale.

“I think most practitioners will tell you that what you should do depends on your particular set of facts and circumstances,” he told Law360.

Zhanna Ziering, at Caplin & Drysdale, said the volume of trading, how much income is unreported, the volume of reporting, the length of noncompliance and whether there are underlying criminal activities are all important factors that should be weighed.

Contemplate Filing an Amended or Delinquent Tax Return

The three different letters sent by the IRS — Letter 6173, Letter 6174 and Letter 6174-A — offer insight into the varying degrees of knowledge that the IRS may have about a holder's cryptocurrency transactions and offers response options.

“The type of letter you received will factor into the suggested course of action, but so does your risk tolerance,” Jaramillo said.

. . .

“Although both letters explicitly state, ‘You do not need to respond to this letter,’ Letter 6174-A warns recipients that additional correspondence about potential enforcement activity may follow,” according to Ziering. “Among other things, these letters are meant to put taxpayers on notice of the applicable rules, which would make further noncompliance a more serious issue.

. . .

Ziering said it is important to be aware that unlike the IRS offshore voluntary disclosure program, which provided leniency and had well-defined penalties for voluntarily declaring unreported offshore income, it is unclear what the penalties will be for disclosing unreported cryptocurrency transactions.

For the full article, please visit Law360’s website (subscription required).

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