Those involved in the crypto-related activity are aware of the necessity to pay taxes. However, there has been a lack of clarity on how cryptocurrency investors should be taxed and what are the proper procedures. To change that, the US Internal Revenue Service (IRS) has promised to release its official crypto tax guidance in the nearest future.
According to IRS Commissioner Charles P. Rettig, issuing tax guidance and providing clarity on digital taxation is one of the priorities of the IRS right now.
“I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance.”
According to the letter, the IRS is working on guidance for ‘acceptable methods for calculating cost basis, acceptable methods of cost basis assignment, and the tax treatment of forks’.
Further, Rettig said that these issues will be solved ‘soon’.
In response, Tom Emmer stated:
“I am glad to hear of the IRS’ plans to issue guidance on this important issue. Taxpayers deserve clarity on several basic questions regarding federal taxation of these emerging exchanges of value. I look forward to seeing their forthcoming proposal, and working together to serve the American taxpayers.”
Tom Emmer is also a member of the Congressional Blockchain Caucus. This group was created by US lawmakers with the aim to solidify the legal requirements and the regulations of the crypto industry. Currently, the Congressional Blockchain Caucus is one of the main pro-regulation forces within the government.
Long-Standing Taxation Issue
It sounds incredible, but the IRS has been very slow in providing crypto tax guidance, as this process has been lasting since 2014. Five years ago, the IRS issued guidance that considers digital assets a property. And that was it, no further steps were made. Tom Emmer said:
“Further, it has been over a decade since the IRS National Taxpayer Advocate identified, in its 2008 Annual Report, that the ambiguous tax treatment of virtual property and currency transactions was one of ‘the most serious problems encountered by taxpayers.’”
The guidance of 2014 does not address fundamental tax questions, and users do not know how to act. Moreover, as there are no proper taxation procedures, many holders of digital assets just do not reveal they have cryptos.
In September 2016, the Treasury Inspector General for Tax Administration said that the crypto tax strategy offered by the IRS was incomplete, and the IRS was called to update the guidance. However, no clarity has been added.
In 2017, US lawmakers sent their first letter to the Internal Revenue Service in order to clarify things regarding crypto taxation, however, there was no result as well. In 2018, Congress members turned to the IRS in an open letter again and urged the IRS to issue updated guidance. As we can see, these measures did not lead to progress.
Now, when the IRS has promised to tackle the taxation issue and release new guidance soon, they hopefully will do that and perform its mission of providing clarity for crypto taxation.