Crypto Tax Rules Need Clarity, US Congress Tells Revenue Agency
The federal tax-collecting authority should update its virtual assets guidance because the lack of clarity creates uncertainty for citizens, Capitol Hill lawmakers said in an open letter.
The US House of Representatives has urged the Internal Revenue Service (IRS) to release a new, comprehensive version of its cryptocurrency guidance because the existing rules are outdated and unclear for taxpayers. In an open letter on Wednesday, the Committee on Ways and Means said the IRS should stop expanding its authority without official notice to citizens.
In 2014, the revenue agency issued its first crypto asset guidance, which was defined as preliminary. This framework lacks clarity and creates difficulties for virtual coin holders because they do not know their actual obligations, the lawmakers explained. The current situation has a lot of loopholes as the guidance only indicates that cryptos are possibly treated as property for tax purposes.
The tax collection authority had enforced several of its existing rules despite coin holders being unaware that these provisions cover cryptos, the committee members wrote. One such example was the implementation of John Doe Summons for anonymous tax offenders to collect the records of around half a million Americans who held virtual currencies between 2013 and 2015.
“Despite the issuance of only preliminary guidance on this issue, the IRS has made enforcement of this guidance a priority, undertaking robust enforcement actions on a number of fronts […] In more extreme situations, taxpayers can be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions,” the letter said.
Last year, the House committee sent its first letter to the revenue authority but has not yet received any answer about the revamp of the preliminary guidance. The Committee has now set October 17 as the deadline for IRS Acting Commissioner David Kautter to reply officially. The Government Accountability Office will make audit on the issue as per the lawmakers’ request.
“More than a year after our initial letter, the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers. We therefore write again today to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currency,” the committee wrote.
The IRS, which operates within the Department of Treasury, launched in July an international alliance to tackle money laundering and tax avoidance, including in cryptocurrency-related activities.