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The IRS Is Hot on the Trail of Unreported Virtual Currency Transactions
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Article Highlights: Coinbase Disclosure IRS Compliance Letters New 1040 Question Reporting under Penalty of Perjury Treated as Property Employee Payments Independent Contractor Income Information Reporting New IRS Guidance Back in 2018, Coinbase, a company handling virtual currency (also referred to as cryptocurrency) transactions, released the data of 14,000 of its users to the IRS after the information was subpoenaed, and virtual currency traders held their breath about what the IRS would do with the information related to those 14,000 users. Although it took some time, after analyzing the Coinbase data, the IRS recently issued letters to more than 10,000 taxpayers whom they suspect have not been properly reporting their virtual currency transactions, and not all of the letters were the same. In fact, one letter was quite frightening. The following is a synopsis of each of the three letters: Letter 6173 – This letter required a response from the taxpayer, by either providing a statement to the IRS that they have already complied with the required reporting or by filing a return that reports their virtual currency transactions. For situations in which the taxpayer had already filed a return but had left off the virtual currency transactions, they will need to file an amended return (Form 1040X). Taxpayers who have received this letter and ignored it may face a full-blown audit by the IRS and could be subject to substantial penalties. Letter 6174 – This was a “soft notice” that did not require a response, and the IRS says it won’t be following up on it. However, the notice also warns that the taxpayer will be in hot water if they had virtual currency gains and fail to amend their return or continue to be noncompliant on future returns despite receiving the letter. Letter 6174-A – The taxpayer isn’t required to respond to the letter but does need to correct their prior returns in which virtual currency transactions were omitted. The IRS warns of future enforcement action if the taxpayer doesn’t amend their return(s) or file their delinquent returns. After receiving the letter, the taxpayer can’t use an excuse of not knowing the law for failing to report their virtual currency gains. Of course, Coinbase is not the only company handling virtual currency transactions, so others are not on the IRS’s radar – at least, not yet. The draft of the 2019 Form 1040 tax return was recently released, and it includes a new question… “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtually currency? Yes or No.” And for those who have not read the fine print in the signature area of the 1040, it reads as follows: “Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.” Those taxpayers who have virtual currency transactions and fail to answer the question or answer it “no” have committed perjury and can be subject to some very serious penalties. As you can see, the IRS is definitely ramping up its compliance efforts. Virtual currency is treated as property, so whenever it is sold, traded, or used to pay for services or to make a purchase, it constitutes a reportable tax transaction, just like selling a stock, where a gain or loss must be determined for each transaction.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
