Despite the belief that at least hundreds of thousands, if not millions, of people utilize Bitcoin and other cryptocurrencies, the IRS found that a very small percentage is filing the 8949. One study seems to suggest that while taxpayers may have an obligation to file 8949s along with their Schedule D, many do not. In fact, while it is generally required for taxpayer to file an 8949 when reporting Bitcoin and cryptocurrency transactions as part of a tax filing, it appears that compliance is shockingly low. Tax Mistakes May be Rampant Regarding the Failure to File IRS Form 8949
One area where it appears that mistakes and insufficient legal filings may be rampant involves the reporting of Bitcoin and other cryptocurrency capital gains and losses and self-employment income from mining activity. In fact, the still developing state of the law regarding the handling of virtual currencies suggests that taxpayers would be prudent to routinely engage in compliance audits based on a current but evolving understanding of the law. However, there is still a great deal of confusion concerning the proper method of accounting for and reporting Bitcoin and other cryptocurrency transactions, income, and taxes. If the cryptocurrency was acquired because of mining activity it results in self-employment income at the value of the cryptocurrency on the date received.
If the property has increased in value, potentially significant capital gains taxes may be due. That is, when property is sold or otherwise transferred, a tax payer is generally obligated to compute gain or loss on the property. Fundamentally, treating Bitcoin and like cryptocurrencies as property opened the door to issues concerning capital gain and capital loss. The IRS’s decision to characterize virtual currency such as Bitcoin as property rather than currency resulted in a number of tax impacts.
How to Survive a High Stakes Tax Audit: A Comprehensive Guide.California and Federal Employment Tax Audits.IRS Tax Audit Guides for the Self-Employed.IRS Tax Audit Guides for Business Owners.Offshore Voluntary Disclosure Program (OVDP).