The Internal Revenue Service (IRS) has issued a circular March 23 reminding taxpayers that income from virtual currency transactions is reportable on their income tax returns.
Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions, and in appropriate circumstances, are liable for penalties and interest. In severe cases, taxpayers may be prosecuted and criminal charges could include tax evasion and filing a false tax return.
Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.