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Industry leaders demanded greater crypto tax clarity at a recent summit organized by the IRS. These conversations are a “healthy sign” for Bitcoin and other digital assets, said one industry representative.
The event yesterday consisted of four panels: technology updates, issues for digital currency exchanges, tax return preparation, and regulatory guidance and compliance, with a host of big names.
Each panel included a representative from the IRS as well as experts from the crypto industry. Crypto companies represented included Coinbase, Ripple, Kraken, Chainalysis, and Coinsource. Some tax firms were also there, with a representative from RSM Tax.
The key takeaway from the summit: we need more clarity from the IRS on crypto tax issues, said industry representatives.
Even though crypto taxes have, thus far, mostly existed in a regulatory gray zone, times are changing. Tax authorities in the U.S. and around the world are putting substantial resources into fighting cryptocurrency-aided tax evasion.
Last year, the IRS sent more than 10,000 warning letters to crypto holders, saying, “taxpayers should take these letters very seriously.”
The problem lies with the fact that the IRS doesn’t treat cryptocurrencies as currencies, but instead as property. This means that every cryptocurrency transaction, including crypto-to-crypto, creates a taxable event that is subject to capital gains tax.
If a U.S. citizen is exchanging, for example, BTC for ETH on a crypto exchange, the IRS will see this event (and they’ve been very clear on this) as a “disposition of property.” That means each time a Bitcoin is traded it is taxable.
And, of course, it opens a range of issues for everyone involved, including the exchanges, the taxpayers, the CPAs, and the IRS itself.
During the summit, the Agency brought up the notion of a central repository of exchange data that, if created, would provide access to law enforcement. Fortunately, the idea wasn’t met with much enthusiasm. Many noted privacy concerns, and Coinbase and Kraken were immediately against the notion.
Instead, exchange representatives urged the Agency to bring more clarity on the exchange reporting requirements. Specifically, on which tax forms should be issued to users.
IRS Virtual Currency Summit update from DC (exchange panel):
— Shehan 🧗♀️ (@shehan1212) March 3, 2020
Exchange representatives further expressed their concerns regarding IRS’s unwarranted pushback on the industry, stressing that “there is no benefit to a Coinbase or a Ripple to not doing the right thing.”
The American Institute of CPAs asked the IRS for clarity on the definition of “financial interest” and demanded binding guidance on the appropriate accounting method for crypto.
Even though the IRS couldn’t address most of the concerns brought up by the panelists or bring any immediate regulatory clarity on the spot, according to attendees, the summit offered an excellent opportunity for the industry to speak and for the regulators to listen.
Sulolit Mukharjee, the head of global tax information at Coinbase, pointed out that “The willingness of the IRS to engage us in forums like this and in conversations is actually a very healthy sign.”
More clarity on crypto taxation will come. The question, however, is when.
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