US Lawmakers Hammer IRS on Bitcoin (BTC) and Crypto Guidelines As France Takes Regulatory Lead in the EU
A bipartisan group of 21 members of the House of Representatives sent a letter to the Internal Revenue Service on April 11, urging Commissioner Charles Rettig to update its five-year-old guidelines on cryptocurrency-related activities.
Led by Representative Tom Emmer from Minnesota, the group wants a written response from the IRS no later than May 15. The lawmakers are requesting new guidance, given that the government agency’s official document on how tax principles apply to crypto trades and transactions has not included a single frequently asked question since 2014.
The letter notes that the IRS first identified the ambiguous tax treatment of cryptocurrencies as one of “the most serious problems encountered by taxpayers” – in 2008. Preliminary guidelines were then released in 2014. In 2017 the IRS agreed to take further action to improve it.
“While we acknowledge and appreciate the guidance your agency released in 2014, there is still substantial ambiguity on a number of important questions about the federal taxation of virtual currencies. In particular, we feel there is urgent need for guidance on the following issues:
1. Acceptable methods for calculating the cost basis of virtual currencies. Which specific methods does the IRS consider to constitute “a reasonable manner that is consistently applied,” as required by Notice 2014-21?
2. Acceptable methods of cost basis assignment and lot relief for virtual currencies. Do taxpayers need to use specific identification whenever they spend or exchange virtual currency, or are other methods, such as first-in-first-out or average cost basis, acceptable as well?
3. The tax treatment of forks for taxpayers that use virtual currencies, such as the 2017 hard fork of the Bitcoin blockchain.
There are many other open questions about the federal taxation of virtual currencies, but we feel that there is particular urgency in resolving the ambiguity around basic questions of how taxpayers should calculate and track the basis of their virtual currency holdings. It is not reasonable to expect taxpayers to satisfactorily answer these complex questions while the IRS remains silent.”
Several countries are grappling with the issue of cryptocurrency use and taxation. Japan’s tax authority is weighing a proposal that would impose different taxes on various types of cryptocurrency activities, including income earned, trading gain or loss, crypto-to-crypto trading (tax exemption), small crypto settlements and purchases.
In the US, cryptocurrencies have short and long-term capital gains and losses, which are reported separately.
In France, regulators are taking the lead in the European Union. It has announced new legislation that officially recognizes cryptocurrencies and allows firms engaged in related activities to apply for a government-issued certification.
The financial sector bill includes optional and mandatory licensing that will require companies in the crypto industry to be subject to regulations that are intended to add legal clarity, stimulating innovation in the industry. The certification will also give investors some protections against scammers and fraudsters, but it will not shield them from any losses. Traders, custodians, issuers and investors will also be required to pay taxes on crypto profits.
France is the first major country to issue a comprehensive regulatory framework that addresses real use cases for cryptocurrencies in today’s markets.
Adopted on April 11, the Action Plan for Business Growth and Transformation (Pacte) law requires cryptocurrency exchanges and custodian providers to register their businesses in compliance with anti-money laundering and know-your-customer regulations. It also establishes a legal framework for initial coin offerings (ICOs).
According to a report by Bitcoin.com, France’s Financial Markets Authority, Autorité des marchés financiers (AMF), will closely monitor the ICO market.
“The raising of funds without AMF approval will continue to be legal in France. However, issuers who have not received the approval of the AMF will not be able to solicit the general public … The AMF will publish the list of ICOs that have received its approval.”
Says AMF Chairman Robert Ophèle,
“These are common sense rules. This regime will enable us to address this new issue with a proportionate framework that both protects investors and fosters innovation. We believe it will attract good projects.”
Speaking at this week’s Paris Blockchain Conference, France’s Finance Minister Bruno Le Maire says the country has established an optimal regulatory framework for cryptocurrencies.
“I will propose to my European partners that we set up a single regulatory framework on crypto-assets inspired by the French experience. Our model is the right one.”