The Internal Revenue Service (IRS) recently announced it had made changes to Form 14457, primarily to include a section on reporting virtual currency. Form 14457 permits taxpayers who may face criminal prosecution for willful violation of tax law to voluntarily disclose information to the IRS that they failed to previously disclosed, to according to the agency.
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Updates and additions to this form include the fact that the IRS Criminal Investigation now accepts photocopies, facsimiles and scans of taxpayer signatures. There is also an expanded section for reporting virtual currency, a penalty structure for employment tax and estate and gift issues, and a check-box for inability to pay in full.
“This is an important form and process for people who recognize it’s better to step forward and address their tax situations head-on, before facing IRS enforcement action,” Doug O’Donnell, deputy commissioner services and enforcement, said in the announcement. “The revised form includes a number of updates, and we encourage people to review the guidelines and consult a trusted tax professional.”
The IRS explains on its website that virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency for federal tax purposes.
IRS Describes Definition of Virtual Currency
The agency describes “virtual currency” as a “digital representation of value, other than a representation of the US dollar or a foreign currency (‘real currency’), that functions as a unit of account, a store of value, and a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.”
In addition, the IRS uses the term “virtual currency” to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.
“Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes,” the IRS website reads.
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The IRS said in its announcement that “thousands of taxpayers” have used the voluntary disclosure practice since its inception. Taxpayers who participate in the voluntary disclosure practice intend to seek protection from potential criminal prosecution, according to the agency’s website.
“Those making such disclosure is still subject to civil examination and the payment of all applicable taxes, interest and penalties,” the IRS said.
This practice, however, does not apply to taxpayers with illegal sources of income as income from activities: it should be noted that activity determined to be legal under state law but illegal under federal laws is considered illegal source income for the purposes of the voluntary disclosure practice , according to the IRS.
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In addition, the IRS notes that taxpayers who did not commit any tax or tax-related crimes and wish to correct mistakes or file delinquent returns should consider other options available in order to comply with their tax and reporting obligations. The IRS encourages taxpayers to consult with professional tax or legal advisors in determining which option is the most appropriate.
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This article originally appeared on GOBankingRates.com: IRS Expands Form 14457 to Combat Cryptocurrency Tax Evasion