In a remarkable letter to the IRS, members of the US Congress are expressing concern that the IRS is taking excessive action against cryptocurrency investors without offering enough clarity on what their tax obligations actually are.
Five lawmakers – including the Chairman of the House Ways and Means Committee – say they will ask the Government Accountability Office to initiate an audit to investigate the agency’s “failure to put forth adequate guidance” for taxpayers.
Here are some highlights of the epic letter that could have big implications on the future of crypto tax policy in the US.
IRS Has ‘Struggled’ With Crypto for Years
“On May 17, 2017, we wrote to the IRS to raise questions about the enforcement actions being taken against those holding virtual currencies and the lack of a comprehensive virtual currency strategy. 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 currencies.”
“Since the emergence of virtual currencies, the IRS has struggled with how to treat virtual currencies for tax purposes and the amount of guidance necessary to assist taxpayers in understanding their tax obligations. In March 2014, the IRS began working to clarify tax issues related to virtual currencies by issuing guidance indicating that virtual currencies would be treated as property for tax purposes. However, in September 2016, the Treasury Inspector General for Tax Administration reported that the IRS had yet to develop a comprehensive virtual currency tax strategy, citing a need for the IRS to update its initial guidance to reflect the various uses of virtual currencies.”
Harsh Taxation Without Orientation
“The IRS has also sought to remind taxpayers of the penalties for non-compliance with its preliminary guidance. In March 2018, the IRS reminded taxpayers that those who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and held liable for penalties and interest. In more extreme situations, taxpayers can be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions.
While the Committee appreciates the IRS’s need to undertake enforcement actions to ensure that taxpayers generally meet their tax obligations, in this case, we are concerned that the IRS is seeking to enforce guidance that does not adequately advise taxpayers of their tax obligations when using virtual currencies. Furthermore, while the issues surrounding virtual currencies are complicated and ever evolving, a key component of the IRS’s duties as the nation’s tax administrator is to assist taxpayers in understanding what their tax obligations are and how they may best meet them. A failure to put forth adequate guidance severely hinders taxpayers’ ability to do so. The IRS has had years to work through these issues since its preliminary guidance was issued, providing more than adequate time for the IRS to thoughtfully consider what additional information is needed.”
Audit Request on the Way
“We therefore strongly urge the IRS to expeditiously issue more robust guidance clarifying taxpayers’ obligations when using virtual currencies. We also ask that you provide a written response outlining where the IRS is in its efforts to issue updated virtual currency guidance, what the IRS intends to cover in this guidance, and a timeline for its release. In addition, to assist the Committee in better understanding this issue, we will be asking the Government Accountability Office to undertake an audit on this matter.”
Kicking the Tax Can
It’s worth noting that according to the Constitution, “all bills for raising revenue shall originate in the House of Representatives” and “Congress shall have the power to lay and collect taxes.”
You can check out the full letter here.[the_ad id="42537"] [the_ad id="42536"]