Regulators are paying more attention to cryptocurrencies than ever. The IRS released cryptocurrency guidance in 2019 (Revenue Ruling 2019-24) that clarifies some of the income tax treatment of virtual currencies. At the same time, enforcement activities are also on the rise; the IRS issued letters to hundreds of taxpayers in 2019 for failing to report or for misre-porting their cryptocurrency transactions.
Virtual currencies and cryptoassets are in uncharted territory, which makes them challenging for the tax and accounting professionals who must account for them. Adding to these assets’ complexity is the fact that virtual currencies have been used in money laundering and other criminal activities because they are so difficult to trace. Their use makes them of particular interest to regulators, who are on the lookout for corruption and fraud.
Businesses and investors should be approaching new cryptocurrency use cases—whether accepting them as legal tender or holding them as alternative investments—with a degree of caution. Accountants and tax professionals also need to be on watch for additional IRS updates and guidance in order to make sure that cryptocurrencies are being reported accurately.