Virtual Currency & The S Corporations

In Accounting & Finances, Business, Taxes on August 20, 2018 by Sufen Wang

IRS Planning to Lay Down the Law on Virtual Currency and S Corporations

It looks like the IRS is going to have a busy year, with several new compliance campaigns on the horizon.

First up is in the swampy realm of virtual currencies. Although Bitcoin is the most famous, there are more than 1,500 digital monies floating around out there on the internet, and more are rearing their head each day. So, it was only a matter of time before the IRS upped the ante to make sure taxpayers using cryptocurrencies are doing their digital deals on the up and up.

The IRS didn’t spill too many beans about what they’ll be on the lookout for, other than that “the compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21.” In plain English, if a transaction involves a taxable event and tax liabilities should have been reported, the IRS is going to make darn sure that tax liabilities were properly reported.


The tax agency plans to attack the cyber money issue from multiple angles, with treatments such as outreach and examinations. But when dealing with currency with names like “Ethereum,” “Ripple,” and “Stellar” (yes, these are all real), it seems like anything could happen. The IRS urged taxpayers to correct their returns as soon as is feasible, which should grease the wheels for a smoother compliance process all around.

Virtual currency fans won’t be the only taxpayers facing increased scrutiny from the IRS – the tax agency will also be cracking down on S corporations. Only S corps who have been abusing any of the following three rules about pass-through entities need to start gnawing their nails, but it’s a good idea for any such businesses to make sure their tax paperwork is in order.

Specifically, the IRS is going to be laying down the law:

  • If an S corporation doesn’t inform a shareholder about the gain on the distribution of appreciated property.
  • If an S corporation doesn’t determine that a distribution (property or cash) is properly taxable as a dividend.
  • If a shareholder doesn’t report non-dividend distributions in excess of their stock basis that are subject to taxation.

The IRS’ campaign announcements are first and foremost warnings for taxpayers who have been engaging in specific activities to be prepared, and they’re designed to encourage compliance. So S Corporations/shareholders and taxpayers using virtual currency – if you think you may be guilty of any of the above mistakes, now’s your chance to do something – before the big bad wolf comes knocking at your door.

Sufen Wang, M.S. Accountancy
Wang Solutions, Long Beach, CA (562) 856-0793

Editor: Hannah Huff, M.F.A. Creative Writing: Poetry, (626) 806-5805

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