American Bitcoin traders are in the sights of the Internal Revenue Service for failing to report their trading gains.
The IRS considers tax on a large share of up to $150 billion of Bitcoin trades should go to the US Treasury and is taking steps to secure the cash.
The IRS is waiting for a San Francisco judge to grant an order that will allow an audit of the largest US cryptocurrency exchange, Coinbase Inc.
If the IRS wins in court, the ruling will open the door to investigate the files of any other cryptocurrency exchange anywhere in the world that carries out a large volume of trades in the US.
The tax authority has identified thousands of US citizens at home and abroad who should report their virtual currency trades, but have failed to do so.
What US Bitcoin traders need to tell the IRS
Under US tax law, Bitcoin traders should file several documents with the IRS:
- Form 8949 to report any capital gains or losses on transfers
- FBAR forms to report foreign accounts that exceed $10,000 at any time during the year. Any Bitcoin denominated account falls under this category, even if the virtual currency is for playing poker online.
- Bitcoin exchanges, traders and related businesses should report yearly with details of US residents with virtual currency accounts with balances of more than $50,000 or US expats with similar accounts but with a $200,000 balance.
The soaring value of Bitcoin that could generate huge capital gains for some traders is attracting the attention of the IRS.
Only 800 taxpayers declare Bitcoin profits
Exchange values surged to a record high of $7,225 recently, while they were only around $725 a year ago.
Anyone who has taken advantage of the huge price shift to make a profit should take steps to make sure they tell the IRS, because if they don’t, the exchange may hand over the data anyway.
The IRS move to collect tax from cryptocurrency traders is ironic.
The US government, in line with those in China and Europe, does not recognise Bitcoin as a currency but as an asset, such as shares, where tax is liable on any profits made on a sale.
Although the IRS suspects Americans have made millions of Bitcoin trades since 2013, only 800 individuals have filed this information on their tax returns.