On Friday the IRS reminded taxpayers that income from virtual currency transactions must be reported on their income tax returns. The IRS 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. Taxpayers need to properly report the income tax consequences of virtual currency transactions or they can be audited for those transactions and, when appropriate, can be liable for penalties and interest, or could be subject to criminal prosecution for failing to properly report the income taxes of their virtual currency transactions. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.