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.”
Advisory committee to the IRS has requested “that the IRS issue further guidance on the information reporting and withholding implications of cryptocurrency transactions"
#IRS #Regulation #cryptocurrencies #cryptocurrencynews
tl;dr The actual issues that clarification is requested for are as follows:
Can cryptocurrency be considered a specified foreign financial asset?
How is the basis determined for cryptocurrency that is sold?
Does broker reporting apply to cryptocurrency transactions
Whether virtual currency held for investment is a capital asset
whether the virtual currency ought to be treated as a security
subject or not subject to the wash sale rules
affected by mark to market implications under Section 475;6
whether a taxpayer may use LIFO or FIFO to determine the basis of virtual currency sold;
basis tracking through activities in the blockchain
whether broker reporting is required under section 6045 of the Code for transactions using virtual currency
whether a taxpayer may contribute virtual currency to an IRA
whether virtual currency is a commodity
Most if not all of this is pretty clearly covered already in existing tax guides. Crypto is treated like any investment property (besides real estate, which has some extra laws associated with it. crypto is actually simpler than real estate). Nothing special was added to the tax code specifically about crypto. It's property. While that may not be convenient for people who try to spend it like money or who do a lot of day trading with it, I don't understand why most people are concerned with clarity when they already released a highly redundant notice/FAQ that explains to you how crypto is property and treated the same as any other property.
The one part that I can understand being confused about is whether they are classified as securities. The answer is likely going to turn out to be "it depends". A security by definition represents an ownership position in a company. Whether or not a blockchain token fits that definition has nothing to do with whether it is a blockchain token and everything to do with whether it represents an ownership position in a company. So again, I can see how that could be confusing to someone who doesn't know what a security is. Most cryptocurrencies would probably not be considered securities (certainly not most of the ones I am familiar with).
I'm honestly embarrassed on their behalf for requesting clarification regarding how to calculate cost basis. That's a pretty well defined and straight forward process. It's the amount you paid to acquire the property. This is something that is covered in the official tax guide but they took the time to release yet another highly redundant publication. It really feels to me like the people asking for clarification never bothered to do the initial groundwork to see what the IRS has already explained. It's as simple as asking "how would any other arbitrary property be treated for tax purposes?".
Am I the only one here who actually thought the process of filing my taxes was actually pretty straight forward? Sure, it was time consuming due to the number of transactions I made with crypto, but I didn't ever feel like I was lacking clarity on how to proceed. Rather, I just wanted to claw my eyes out after staring at the screen for days straight because I was too stubborn to hire someone to do it for me (which can apparently be written off as an expense on your taxes, btw)
Regarding wash sales, I am pretty sure that it's widely accepted that wash sales do not apply to crypto (unless that crypto represents ownership in a company). However, that is something I would consider likely to change in the future. The fact that there is no regulation prohibiting people from abusing that part of the tax code is probably the reason people think it needs clarification. It seems too good to be true, so everyone is playing it safe. However, the fact remains that the existing tax guides are very clear that the regulations regarding wash sales are something that applies specifically to stocks and securities.