2017 is viewed by many as the year of the crypto. However, with the increase in popularity and surge in value of cryptocurrencies, a significant number of cryptocurrency investors are now finding themselves in the uncomfortable position of trying to determine what, if any, is their tax liability attributable to their 2017 cryptocurrency transactions. The heightened level of taxpayer concern with correctly reporting the tax liability associated with their transactions can be directly associated to the John Doe summons the Internal Revenue Service (IRS) issued to Coinbase, one of the largest cryptocurrency exchanges in the United States.
The IRS is concerned that many U.S. taxpayers may not be accurately reporting the gains or income they have generated from their cryptocurrency transactions. Since the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value in most cryptocurrencies, coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates) since the cryptocurrencies were likely held less than 12 months, the IRS has good reason to be concerned.
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