The IRS brings to mind that TAXPAYERS SHOULD REPORT ON TRANSACTIONS IN VIRTUAL CURRENCY

The US Internal Revenue Service recalls that taxpayers should indicate income from transactions with electronic money in a tax return.

Legislation provides for taxation of virtual currency transactions, as in case of any other transactions. The IRS issued a guidance in the IRS Notice 2014-21 for taxpayers and individuals who file a tax return.

State bodies check and verify tax returns for inconsistencies in data on transactions with digital currency. Upon termination of the verification, penalties may be applied. 

In case of incorrect indication of transactions with virtual currency, a taxpayer can be prosecuted and brought to criminal liability on the basis of articles on tax evasion and on filing false tax reports. In the first case, the perpetrator faces imprisonment up to five years or a fine of up to $250,000, and in the second case - detention for up to three years or a fine of up to $250,000.

The IRS Notice 2014-21 provides that general principles of taxation applicable to transactions with property apply to transactions with digital currency. Among other things, the foregoing means that:

1. A payment made using a virtual currency shall be reported in the same way as any other payment made otherwise.
2. Payments using virtual currency sent to independent contractors and other service providers are taxed on the principle of self-taxation. Payers should usually complete and submit the form 1099-MISC.
3. Wages paid to employees in virtual currency are taxed by the income tax for individuals. W-2 form is submitted to the tax authority.
4. Some third-party organizations that operate in the sphere of trade and carry out transactions with virtual currency must maintain accounting according to these transactions.