Bitcoin and other forms of virtual currency are gaining popularity. But many businesses, consumers, and investors are still confused about how virtual currency works and how to report transactions on their federal tax returns. The IRS announced it is sending letters to taxpayers who potentially failed to report income and pay tax on virtual currency transactions or didn’t report them properly. The letters urge taxpayers to review their tax filings and, if appropriate, amend past returns to pay back taxes, interest and penalties. Do you need to amend your past returns?

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