U.S. Tax Agency calls for Tax Guidance on Cryptocurrency Transactions

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The U.S. Internal Revenue Service (IRS) thinks the agency should provide more precise guidance on how digital currency may be taxed.

As per a new report released on October 24, the Information Reporting Program Advisory Committee (IRPAC) highlighted digital currencies’ rise in popularity, noting that “there has also been an equal rise in question as to the applicable tax outcomes.”

The IRS has already published one notice back in 2014 saying that digital currencies are treated as property for tax purposes reiterating that position in a statement released in March ahead of the April 15 tax filing deadline.

As per the report, “many industries and tax practitioners still question other tax consequences of digital currency transactions.”

The report goes on to say:

“Can digital currency be considered a specified foreign financial asset? How is the basis determined for digital currency that is sold? Does broker reporting apply to digital currency transactions? Hence, IRPAC suggests that the IRS releasee further guidance on the tax consequences of digital currency transactions.”

The discussion further in the report describes that digital currencies and their possible tax liabilities within the U.S. may be as much as $25 billion. As per the research note published by Fundstrat Global Advisors. Although, this number is based on a figure of $92 billion in taxable gains for U.S.-based digital currency investors.

As per Fundstrat, as much as 50% of digital currency-related tax liabilities may have gone unreported – though it acknowledges that this number might not be correct.

The report asserts, “Whether or not these estimates are correct, they underscore the need to obtain more information on the operations of these protocols and to assure that taxes that may be applicable to them are efficiently collected.”

That being stated, the report further notes that “there remain notable open issues,” which will need analysis and guidance to explain how the term “transaction” may be defined.

The report states, “Many, if not most, taxpayers will report these activities perfectly if they can determine the implications of their digital currency activities.”