The Internal Revenue Service on Friday reminded taxpayers that income from virtual currency transactions is taxable by law and is reportable on their income tax returns.
The IRS issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency.
“Virtual currency transactions are taxable by law just like transactions in any other property,” the IRS states.
“Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest,” the IRS said.
In more extreme situations, the IRS states, “taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions.”