Block on Trump's Asylum Ban Upheld by Supreme Court
As we warned three years ago, the IRS considers Bitcoin and other digital currencies to be property for taxation purposes. Meaning buyers, sellers, and traders of virtual currencies may need to pay real taxes on those transactions.
If you haven't been reporting those gains or losses on tour tax returns, you might be in for a rude awakening come April. The IRS just gained access to information on over 10,000 users of Coinbase, a digital currency exchange.
The Who and the Why
On Wednesday, a federal judge in California ordered Coinbase to give the IRS identifying records for all users who bought, sold, sent, or received more than $20,000 of digital currency through their accounts in a single year from 2013 to 2015. That information will include the user's taxpayer ID number, name, birth date, address, records of account activity, and any periodic statements of account or invoices.
The IRS got suspicious when, after Bitcoin's recent boom, only 800 to 900 electronically filed tax returns included a property description that was "likely related to bitcoin" between 2013 and 2015. Gaining access to that user information means Coinbase users who weren't entirely forthcoming about their Bitcoin gains in those years might want to go ahead and file an amended tax return, reporting any gains or losses.
The When and the How
As Mic.com reports, the IRS considers bitcoin "property," so you may need to report virtual currency transactions in three scenarios:
And the U.S. District Court described how those transactions must be reported in its order to Coinbase: "Capital gain or loss for property transactions, including those from virtual currency, is reported on IRS Form 8949, which is attached to Schedule D of a Form 1040. Form 8949 includes a space where the taxpayer is asked to report the type of property sold."
So while your currency may exist in the virtual realm, your tax obligations exist in a very, very real one.