Lawmakers are calling on the Internal Revenue Service (IRS) to provide additional guidance on taxation of cryptocurrency. The House Ways Committee Chairman along with others on his committee sent a letter to the IRS to question enforcement actions taken against taxpayers holding virtual currencies.

Ultimately, the letter urges the IRS to provide guidance on expectations to better ensure those who have virtual currency can comply with their tax obligations.

What do we know about how the IRS treats cryptocurrency? The IRS provided guidance in 2014. At that time the agency stated it would require taxpayers to report cryptocurrency assets and would tax these assets as property.

We also know the agency does not intend to offer a program to aid those who failed to come into compliance during past tax years.

How serious is the IRS about enforcing the reporting of cryptocurrency? Very. The IRS has issued John Does summons in the past, requesting Bitcoin and Coinbase report all accounts held by United States taxpayers.

The IRS has also stated it could pursue criminal charges against those who failed to report these virtual transactions. These charges could include tax evasion, which comes with a $250,000 fine and a maximum prison sentence of five years. Additional restitution payments are also likely.

How can taxpayers avoid prosecution? The IRS will likely investigate taxpayers based on cryptocurrency holdings in the near future. This could lead to a dispute over tax obligations. As such, those who need to report these assets are wise to seek legal counsel to discuss their options.