In November 2017 the IRS was successful in federal court in its quest to gain access to bitcoin transactions. They now have the records for any transaction worth more than $20,000, including exchanging bitcoins for dollars, and sending or receiving bitcoins to/from another user. The time frame of available information covers transactions between 2013 and 2015. The IRS is expecting a large number of bitcoin users to pay taxes owed on unreported transactions. We would be surprised if this was the end of the quest for information by the IRS. With 2016 and 2017 being big years for bitcoin activity, and other successful cryptocurrencies being left out of the November 2017 court order, a lot of possible unreported transactions are not covered by this subpoena.
The transactions involving bitcoin can be taxed in one of two ways, as ordinary income to the user or as capital gain income. It is advantageous to the user to have the transaction treated as capital gain income, similar to stock transactions, as it would yield a lower tax impact. The determining factor in how the transaction is taxed is how the bitcoin was acquired – either through a goods and services transaction, or mining, or cash purchase. If you have unreported prior transactions or current transactions involving cryptocurrencies, please reach out to our tax department to ensure that the related tax impacts are handled correctly.