Multiple Congress Members Sent the IRS a Crypto Tax Regulation Letter Requesting Clarity
Members of Congress Have Sent a Letter to the IRS Asking for More Clarity on Crypto Tax Regulations
Several members of the United States Congress have sent a letter to the Internal Revenue Service (IRS) asking for cryptocurrency tax law clarity. The letter was published online earlier today.
In the letter, members of the Congress ask the IRS to:
“expeditiously issue more robust guidance clarifying taxpayers’ obligations when using virtual currencies.”
The letter was published by House Ways and Means Committee Chairman Kevin Brady earlier today, although the letter was sent to the IRS in May 2017.
Today, cryptocurrencies continue to occupy an uncertain place in American tax law. Every American who holds cryptocurrency needs to report those holdings to the IRS on their annual tax return. Bitcoin and other cryptocurrencies are currently taxed like property, which means users need to report every single sale and purchase of that property. This has led to a headache for crypto users – particularly active traders who make hundreds or thousands of trades per year.
The Letter Takes Particular Issue with the Infamous John Doe Summons Against Coinbase in 2016
The letter broadly asks the IRS to clarify their stance against cryptocurrencies, including how the agency plans to target cryptocurrency users and how it plans to tax digital assets.
In the letter, members of Congress ask for more information about the rationale behind the IRS’s 2017 John Doe summons for Coinbase user data. Last year, the IRS famously requested information about Coinbase users’ trading habits. There was pushback against that request, with some calling it an overly broad fishing expedition.
The letter also calls for a “de minimis” exemption that would allow for small, unreported transactional use of cryptocurrencies. Instead of reporting every single crypto transfer – from your coffee purchase to your major trades – the IRS is being urged to adopt clearer, fairer crypto tax regulations. Currently, users need to calculate capital gains on every crypto transfer they make.
The letter is addressed to John Koskinen, Commissioner of the Internal Revenue Service.
The letter wasn’t published online until today, September 19, 2018. However, the letter is dated from May 2017. It appears that Members of Congress sent the letter soon after the IRS’s John Doe summons against Coinbase, which occurred in December 2016. The authors of the letter took particular issue with this order:
“Despite the absence of a comprehensive strategy, on December 6, 2016, the IRS issued a summons to Coinbase requiring the records of all American Coinbase customers who conducted transactions in convertible digital currency between January 1, 2013 and December 31, 2015. The summons is estimated to affect 500,000 active Coinbase customers and would result in the production of millions of pages of associated records, many of which contain personally-identifiable information. However, 90 percent of these customers engaged in less than $10,000 in cumulative, gross transactions during the entire period requested.”
A summons like this is called a “John Doe summons” because it refers to a whole class of people – not a single named person. In order to make a John Doe summons, the government must establish that the summons pertains to an ascertainable class of persons whose identity is unknown and with whom the IRS has a reasonable basis for believing they violated tax law.
The letter goes on to request that the IRS provide specific information about their digital currency strategy, including:
- What efforts the IRS has made to conduct industry outreach or coordination on its digital currency strategy
- What industry concerns have been raised, if any, and what actions the IRS is taking to address those concerns
- How the John Doe summons against Coinbase fits into the larger IRS digital currency strategy
Basically, the letter is asking the IRS to show some responsibility behind their controversial crypto tax law decisions. Based on the John Doe summons against Coinbase and other decisions made by the IRS, it seems like the agency doesn’t have a coherent crypto tax law: they’re just digging through crypto user records and hoping that something will stick. It’s not a targeted investigation: it’s a fishing expedition.
The letter concludes by asking the IRS to provide, at their earliest convenience, a briefing to the staff of both Committees on the topic.
The letter is signed by Orrin Hatch (R-UT), Chairman of the Senate Committee on Finance, Kevin Brady (R-TX), Chairman of the House Committee on Ways and Means, and Vern Buchanan (R-FL), Chairman of the House Committee on Ways and Means Oversight Subcommittee.
You can view the full letter here. If you’re an American crypto user who feels overwhelmed by crypto tax laws in the country, then this letter shows that at least some politicians have your back – and they’ve been paying attention since at least May 2017.