The IRS has issued guidance in IRS Notice 2014-21 for use by taxpayers and their return preparers that addresses transactions in virtual currency, also known as digital currency. Notice 2014-21 provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. 

The IRS made their announcement a few weeks after Coinbase, a major exchange that enables people to convert sovereign currency to cryptocurreny and back again, told users that it was handing over the information of approximately 13,000 customers to the IRS. Some cryptocurrency investors are already getting negative attention from the IRS, including one Reddit user who says that they now owe $50,000 that they say they do not have. Others are worried that the same will soon happen to them. Another Reddit user highly recommends that if someone makes gains from cryptocurrencies that they hire a CPA, and implies that many cryptocurrency users don't understand tax law and underestimate the power of the IRS.