IRS Plans to Issue Guidance on Virtual Currency Taxation
Internal Revenue Service (IRS) commissioner Charles Rettig has explained to U.S. representatives that the tax department plans to issue clearer guidance toward cryptocurrency taxation soon. Since 2014, Americans have been asking the tax agency for better clarification in regard to official tax guidelines.
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IRS Pressured to Issue New Crypto Tax Guidelines
In September 2018, news.Bitcoin.com reported on a group of U.S. bureaucrats who sent a formal letter to the IRS asking for more clarification in regard to the way cryptocurrencies are taxed in America. U.S. representative Kevin Brady, Tom Emmer and a variety of other state officials insisted in the letter that digital asset taxation needs clearer guidelines. Since the tax agency’s official statement in 2014, the current guidance for taxpayers is to file each and every transaction executed when using a cryptocurrency as each transaction is considered a taxable event. Meanwhile, in the U.S., cryptocurrencies are also taxed under traditional capital gains laws that apply to property investments. The letter from various representatives notes that most officials believe the IRS should have no problem issuing a comprehensive virtual currency strategy for taxes.
“[We] strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.” the letter read.
Acceptable Methods of Calculation and the Tax Treatment of Forks
IRS commissioner Charles Rettig responded with an official statement which explains that the tax commissioner agrees with the request and the agency plans to issue tax guidelines soon. “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance,” Rettig wrote in response to the request from congressional leaders.
Rettig’s letter details that the IRS issued Notice 2014-21, which essentially says that cryptocurrencies like bitcoin are to be treated as property. This means that existing tax statutes that apply to property transactions also pertain to virtual currencies. However, Rettig’s response notes that things have changed since then and virtual currency use as a medium of exchange and as an investment vehicle have continued to develop. The IRS commissioner details that the tax agency has received “numerous comments in response to the notice (2014-21)” and the IRS claims to be working with “internal and external stakeholders.” The stakeholders and the IRS have been identifying areas that need guidance. According to the IRS, there are three identified areas underscored by Rettig’s letter and the new guidelines should include:
- Acceptable methods for calculating cost basis.
- Acceptable methods of cost basis assignment.
- Tax treatment of forks.
“We have been considering these issues and intend to publish guidance addressing these and other issues soon,” Rettig wrote. Following the letter, congressman Tom Emmer (MN-06), a member of the Congressional Blockchain Caucus and coauthor of the initial letter, replied back to the IRS commissioner. “I am glad to hear of the IRS’ plans to issue guidance on this important issue — Taxpayers deserve clarity on several basic questions regarding federal taxation of these emerging exchanges of value,” Emmer’s correspondence said. “I look forward to seeing their forthcoming proposal, and working together to serve the American taxpayers.”
The original bi-partisan letter from U.S. representatives expressed hope for more guidance from the IRS with a deadline for May 15, 2019. People have been complaining about the lack of well-defined tax guidelines for quite some time as many Americans believe the process is confusing. Further, the IRS has had no issues with the enforcement aspect of making people pay up and the agency has regularly sought to remind taxpayers of the penalties for non-compliance. The tax entity has also applied criminal prosecution to U.S. residents who have failed to ‘properly’ report their income tax in regard to virtual currency transactions.
What do you think about the IRS Commissioner’s response letter to the bi-partisan representatives? Let us know what you think in the comments section below.
Image credits: Shutterstock, Pixabay, and the IRS.
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