Cryptocurrency, or virtual currency, is now a significant player in the investment marketplace, and, as a result, many challenging legal and regulatory questions have been raised across the globe. While cryptocurrency and its utilized technologies could radically change business processes, its inherently decentralized nature could serve as a vehicle for sinister activity and a challenge to those charged with compliance with the law.
The IRS is investing significant resources to combat potentially staggering levels of tax noncompliance with reporting income associated with cryptocurrencies, highlighted by its summons for account holder information from the U.S.-based cryptocurrency exchange Coinbase (Coinbase, Inc., No. 3:17-cv-01431 (N.D. Cal. 11/30/16) (order granting ex parte petition). This item (1) discusses some key U.S. tax implications and unanswered questions of cryptocurrencies and (2) identifies possible avenues of relief for taxpayers with unreported income or assets connected to cryptocurrency.