A group of U.S. legislators has asked the Internal Revenue Service (IRS) to provide updated guidelines on how taxpayers should report profits associated with investing in bitcoin and other cryptocurrency assets.
Republicans Criticize IRS for Enforcing Tax Law without Clear Guidance
In a letter dated Sept. 19 and published on the House Ways and Means Committee website, five representatives — Kevin Brady (R-TX), David Schweikert (R-AZ), Lynn Johnson (R-KS), Darin LaHood (R-IL), and Brad Wenstrup (R-OH) — “strongly urged” the IRS to issue comprehensive, updated guidance on federal tax obligations associated with disposing cryptocurrency assets, either through trading or other means.
The group of Republican lawmakers had sent the IRS a letter last May expressing concern over the agency’s decision to ramp up enforcement of cryptocurrency-related violations without also adopting a “comprehensive virtual currency strategy” to help taxpayers more successfully navigate the murky regulatory code.
In this week’s letter, they criticized the IRS for failing to address their concerns:
“More than a year after our initial letter, the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers. We therefore write again today to 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 legislators repeatedly contrasted the agency’s increasing enforcement of cryptocurrency tax evasion, which included taking trading platform Coinbase to court to obtain information on customer transactions, with its implicit refusal to provide either updated guidance or safe harbor for taxpayers who made a good-faith effort to report their cryptocurrency-related gains.
“Despite the issuance of only preliminary guidance on this issue, the IRS has made enforcement of this guidance a priority, undertaking robust enforcement actions on a number of fronts,” the lawmakers wrote. “At the same time, the IRS also announced that it would not be providing leniency for taxpayers by allowing for a voluntary disclosure program to address tax non-compliance related to virtual currencies.”
Lawmakers Set Oct. 17 Deadline
Current IRS guidance on cryptocurrency dates back to 2014 when bitcoin traded at a fraction of its current value and most currently-existent altcoins had not yet been invented. That preliminary guidance treats cryptocurrency assets as “property” for reporting purposes, meaning that taxpayers are supposed to pay capital gains on any profits realized when they dispose of their coins, even when disposing of them through a transaction as minor as purchasing a cup of coffee at a bitcoin-friendly restaurant.
The agency has been conspicuously silent, however, on complex situations such as cryptocurrency hard forks, when a blockchain split leaves investors with coins on multiple networks — coins that in many cases they may not even want.
In one of the letter’s more pointed sections, the legislators said that they were concerned that the IRS was failing to adequately advise taxpayers of their reporting obligations, neglecting one of the agency’s primary duties as a government organization.
They wrote:
“[A] key component of the IRS’s duties as the nation’s tax administrator is to assist taxpayers in understanding what their tax obligations are and how they may best meet them. A failure to put forth adequate guidance severely hinders taxpayers’ ability to do so. The IRS has had four years to work through these issues since its preliminary guidance was issued, providing more than adequate time for the IRS to thoughtfully consider what additional information is needed. “
The lawmakers concluded the letter by calling for the IRS to “expeditiously issue more robust guidance” on cryptocurrencies and giving the agency an Oct. 17 deadline to provide the Ways and Means Committee with information about its plans to draft and issue updated guidance, as well as a timeline for its eventual publication.
Images from Shutterstock
Follow us on Telegram or subscribe to our newsletter here.
• Join CCN’s crypto community for $9.99 per month, click here.
• Want exclusive analysis and crypto insights from Hacked.com? Click here.
• Open Positions at CCN: Full Time and Part Time Journalists Wanted.