The US Internal Revenue Service (IRS) has deployed a new tax form requiring users to declare any dealings with cryptocurrency.
The IRS' new "Schedule 1 for the 2019 tax season," asks tax payers if they received, sold, sent, exchanged, or acquired virtual currency by any other means over the past year.
This is the agency's latest effort to gather additional information on taxpayers' virtual currency holdings. Last year, the IRS started sending letters to known cryptocurrency traders telling them to fess up about their trading habits.
As a taxpayer myself, I find this question very frustrating because it isn’t clear"
Form 1040 is used by over 152 million US taxpayers. The first question on the new Schedule 1 reads, "at any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"
"As a taxpayer myself, I find this question very frustrating because it isn't clear," Sarah-Jane Morin, partner at Morgan Lewis in San Francisco, told CNBC. Moving your own virtual currency from one crypto wallet to another, for instance, could be considered "sending," she added.
Failure to properly report these transactions, in the most extreme cases, could mean prison time and a fine of up to $250,000.
"So far only 'dozens' of offenders have not been paying tax on crypto transactions, which raises the real question of whether unlawful tax behaviour is present in cryptocurrency transactions in significant amounts," Michael Bacina, partner at Piper Alderman said.
In a similar move to the IRS, the government in South Korea is looking to levy taxes on citizens that trade cryptocurrency.