Virtual Currency (VC) Holders NEED to KEEP RECORDS was published by JD Supra on 11/14/18.
Internal Revenue Code Section 6001 requires Taxpayers to maintain adequate books and records. Keeping adequate VC books and good records will assist a Taxpayer to:
Monitor the progress of a VC investment
⦁ Prepare financial statements
⦁ Identify profits and or losses
⦁ Keep track of a VC cost basis
⦁ Prepare tax returns
⦁ Support items reported on tax returns
Taxpayers that are:
⦁ Selling VC,
⦁ Trading VC,
⦁ Exchanging VC,
⦁ Converting VC into fiat currency,
⦁ Using VC to obtain goods and services and
⦁ Getting wages and or salaries paid in VC
Ought to be sure that they are keeping adequate VC books and records.
Failure to maintain adequate books & records or provide substantiation of items reported on tax return may be construed as negligence under the Internal Revenue Code (IRC).
The IRC requires US Taxpayers to keep adequate books & records and comply with applicable IRS rules & regulations. If a Taxpayer does not maintain records, or financial records are not adequate under IRS standards, its agents are authorized to reconstruct Taxpayer income by a method that it believes clearly reflects the Taxpayers income. Taxpayers carry the burden of proof for complying with these requirements. The IRS is authorized to impose a 20% accuracy related penalty for a Taxpayers negligence or disregard of IRS rules & regulations.
Since VC is treated like “property” under IRS standards, Taxpayers are required to document and keep records of:
⦁ When and how they acquired the VC
⦁ Purchase price of the VC
⦁ How was the VC used
⦁ When and how they disposed or exchanged the VC
⦁ Selling price of the VC
Don’t be a Victim of your own making
Taxpayers with VC holdings ought to maintain adequate VC books and records particularly if they are chosen for an “unexpected” audit. In addition, many Taxpayers might be “tempted” to declare “losses” on the VC holdings due to fluctuations without having reported “gains” in past tax returns. If you are a Taxpayer with VC holdings, consult your specialized tax professional.