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Got virtual currency? You could receive a letter from the IRS

Boston taxpayers are required to report all of their income, which includes any virtual currency owned. The problem is that it is easy to forget about it and that could draw the attention of the IRS. In fact, the federal taxing authority recently announced that it has begun contacting certain owners of this type of currency via mail.

The letters accuse virtual currency owners of failing to report this income and pay the required taxes on it. The IRS categorizes the three types of letters as "educational." They say they intend to advise the affected taxpayers of their filing and tax obligations. Taxpayers are also given advice regarding how to correct perceived errors.

If a Boston taxpayer receives such a letter, it would be a mistake to ignore it. An advisory letter could easily turn into a criminal investigation or audit. The first step would more than likely include a thorough review of any virtual currency transactions and tax filings. If any discrepancies are found, correcting them as soon as possible is in order. If a taxpayer believes he or she received the letter in error, a different course of action may be in order.

Understanding the rights and responsibilities a taxpayer has will also be an integral part of the process. The IRS must not violate his or her rights. Even though the agency has a significant amount of power when it comes to collecting taxes, the agency cannot act with impunity. One of the rights every taxpayer has is to consult with and be represented by an attorney, and some taxpayers may need to seriously consider taking advantage of this right in order to avoid adverse consequences in their dealings with the IRS.

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