Lawmakers Want Answers From IRS, Citing Major Issues With Crypto Tax Guidance
Eight lawmakers have sent a letter to the IRS seeking answers to new questions stemming from the latest crypto tax guidance. They pointed out a number of major issues including unwarranted tax liabilities for crypto users who unwillingly receive forked or airdropped coins.
Guidance Comes Years After Major Forks
Eight members of the U.S. Congress have sent a letter to the Internal Revenue Service (IRS) requesting answers regarding the tax treatments of crypto transactions, pointing out major issues in the agency’s latest guidance. The letter, dated Dec. 20, is addressed to IRS Commissioner Charles P. Rettig. It was signed by Congressmen Tom Emmer, David Schweikert, Lance Gooden, Matt Gaetz, Bill Foster, Darren Soto, French Hill, and Warren Davidson. Firstly, the congressmen wrote:
The guidance appears inequitable as it comes almost two years after the Bitcoin and Bitcoin Cash fork and three years after the Ethereum fork.
The lawmakers referenced their April letter to the commissioner urging the issuance of tax guidance for crypto users. The IRS published its newest guidance in October, which supplements the previous one published in 2014. However, the crypto community immediately spotted numerous problems with the guidelines.
The congressmen proceeded to address the tax issues surrounding hard forks and airdrops which the guidance focuses on, claiming:
The hypothetical fact patterns concerning forks and airdrops offered in this guidance do not appear to bear a close resemblance to actual forks or airdrops as they have occurred in the cryptocurrency ecosystem.
“Without clear and accurate hypotheticals for taxpayers to measure against, it is difficult to interpret IRS policy as it relates to actual events,” the letter adds.
Unwarranted Tax Liability
Another major issue raised by the congressmen concerns how the IRS plans to tax an airdrop following a hard fork. “The IRS appears to adopt as a standard ‘dominion and control’ over forked or airdropped assets in order to determine when a taxable event occurs,” the letter details. According to the tax guidance, recipients will “have ordinary income equal to the fair market value of the new cryptocurrency when it is received … provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency.”
However, the congressmen asserted that this treatment appears to diverge from established tax rules in other areas such as the receipt of unsolicited prizes or samples. Emphasizing that it would mean crypto owners would owe taxes from forks or airdrops even if they have no knowledge of them or take no step to claim or access airdropped or forked tokens, the lawmakers elaborated:
This creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies and would create inequitable results. We do not expect this is the intended effect of the guidance, and we urge the IRS to clarify the matter.
The IRS has tried to clarify how it plans to treat promotional airdrops but has yet to provide clear answers.
Guidance Ignores Many Crypto Products
The IRS primarily focused on hard forks and airdrops in its guidance and failed to address many other crypto-related products on the market that may lead to tax liabilities, the letter conveys. The lawmakers stressed the importance of the agency providing guidance on how income related to all crypto transactions are taxed, noting:
The guidance also does not contemplate the vast variety of products offered in the cryptocurrency market: futures, retirement accounts invested in crypto assets, and interest paid on crypto deposits, to name just a few.
Tax Withholding, Reporting, Established Law
The lawmakers then addressed two more problems. The first concerns tax withholding and reporting, and they claim the IRS has failed to provide any clarity on these areas. They explained that taxpayers rely on forms such as 1099 to help complete their income taxes. However, “Since many are either not reporting 1099s at all or are reporting incorrect or incomplete information, it is imperative that the IRS publish clear information in further guidance.”
The second problem concerns how “the form of the guidance appears to indicate that this is ‘established’ law,” the letter describes. The congressmen then urged the IRS to recognize that cryptocurrency is a new and developing area and allow for reasonable interpretations. While commending the IRS for issuing its guidance, the lawmakers suggested “increased work with the industry into the future.”
Three Pressing Questions for IRS
After detailing the problems with the guidance, the lawmakers asked the IRS three questions. They noted that legislation has been introduced to protect taxpayers from liabilities from forks and airdrops until the IRS has provided clarity.
“In spite of the recent guidance, cryptocurrency users continue to lack any meaningful clarity about their tax obligations with respect to forks and airdrops,” the letter adds, concluding:
Until there is clear guidance that is prospective in nature, we urge the IRS to use its authority for penalty relief in those instances in which taxpayers made a good faith effort to comply.
What do you think of the issues raised by the congressmen regarding the IRS tax guidance? Let us know in the comments section below.
Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Images courtesy of Shutterstock and the U.S. Congress.
Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.
The post Lawmakers Want Answers From IRS, Citing Major Issues With Crypto Tax Guidance appeared first on Bitcoin News.
Powered by WPeMatico