Expanding on guidance issued in 2014 (Notice 2014-21), the US Internal Revenue Service has circulated further detailed information for taxpayers engaging in transactions involving virtual currencies. The aim is to increase awareness on reporting obligations and address questions from tax practitioners and taxpayers about the tax treatment of a cryptocurrency hard fork, and how longstanding tax principles apply in the new digital environment. In addition, a set of FAQs address virtual currency transactions for those who hold virtual currency as a capital asset.
Notice 2014-21 explained how cryptocurrencies fall under federal tax laws, and it originated from the belief that some taxpayers may have failed to report income and pay taxes. As a result, the IRS is now increasingly investing on one side in an education campaign, and on the other in investigative activities aiming at curbing abuses. Taxpayers failing to report transactions involving cryptocurrencies, could be subject to criminal prosecution.