On October 24, 2018, an advisory committee to the Internal Revenue Service (IRS) published a report calling for clarity on the IRS’s position toward cryptocurrency taxation.
The Information Reporting Program Advisory Committee (IRPAC) recently released its annual report[1] advising the IRS on possible areas to improve the tax code, specifically referring to data gathered throughout the fiscal year of 2018.
In this 95-page report, multiple sections are dedicated to the issue of cryptocurrency taxation, with the IRPAC specifically recommending “that the IRS issue further guidance on the information reporting and withholding implications of cryptocurrency transactions.”
Cryptocurrency tax policy has been a headache for investors, as the IRS regards each trade as a taxable event akin to realizing gains on an investment. Perhaps due to the abstruse nature of the tax code and the inherent complexities that come with reporting each trade, few investors reported their gains[2] for the 2017 tax year.
In the report’s overhead, the IRPAC specifically credits the IRS’s Notice 2014-21 for acknowledging that virtual currency is still treated as property in the eyes of the federal government’s capacity to levy taxes.
Nevertheless, the report claims that the rise of cryptocurrency has raised further questions about the tax regulations around the nascent asset class, including whether or not cryptocurrency is a specified foreign financial asset or if crypto transactions must follow the guidelines of broker reporting.
The report cites research from Fundstrat Global Advisors in April, which estimates that there are $25 billion in tax liabilities within the United States. The report goes on to state that “because transactions in virtual currencies can be difficult to trace and have an inherently pseudonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.”
Needless to say, such a
