New Crypto Transaction Tax Regulations are a Necessity According to Committee for IRS
New Tax Regulations Are a Necessity For Crypto Transactions, According to Committee For IRS
The U.S. Internal Revenue Service (IRS) may pursue a recent recommendation from an advisory committee regarding cryptocurrency. Rather than another effort to regulate how tokens are classified or the registration requirements of platforms, they are handling a new issue – taxation of cryptocurrency.
A report on October 24th indicates that the Information Reporting Program Advisory Committee (IRPAC) has been examining the rise in popularity among cryptocurrencies and their respective platforms. In the report, the IRPAC commented, “there has also been an equal rise in question as to the applicable tax consequences.”
Some members of the cryptocurrency community might remember a notice that the IRS had issued in 2014, requiring that cryptocurrencies are considered property, when users prepare their taxes. In a March statement this year, they reiterated the policy, giving the public a reminder before the April 15th tax deadline.
However, even with this reminder, the report indicates that,
“Many industry and tax practitioners still question other tax consequences of cryptocurrency transactions.”
The report continues, saying,
“Can cryptocurrency be considered a specified foreign financial asset? How is the basis determined for cryptocurrency that is sold? Does broker reporting apply to cryptocurrency transactions? Therefore, IRPAC recommends that the IRS issue further guidance on the tax consequences of cryptocurrency transactions.”
As the report progresses, it says that the tax liabilities that could end up assigned to cryptocurrency holders could add up to around $25 billion. However, that is based on a figure that reported $92 billion being available for taxable gains.
According to Fundstrat Global Advisors, which is a group included in the report, there are about 50% of the liabilities for cryptocurrency taxes that have yet to be reported, though that number may not be accurate. The report continued, “Whether or not these estimates are accurate, they clearly underscore the need to gain more information on the operations of these protocols and to ensure that taxes that may be applicable to them are efficiently collected.”
The report also showed that some of the investors that could be subjected to these laws end up using exchanges outside of the United States, or they use platforms that enable anonymity. These decisions are clear ways that users are avoiding the taxes they would be required to cover, so the report proposed the idea of working with other governments to collect as well.
Regardless, the report admits that “there remain significant open issues,” and they need to start with establishing an official rule about the definition of “transaction.”
The report added,
“Many, if not most, taxpayers will report these activities correctly if they are able to determine the implications of their cryptocurrency activities.”