As cryptocurrency acquisition has boomed, the Internal Revenue Service has been famously elusive about the regulation by which such capital gains and losses are legally accounted for. While there was some preliminary guidance issued back in 2014, it only covered trading, and urged users to report digital asset gains as “property”. This governance is seemingly from another time; a time when Bitcoin was nowhere near its current price and most alt-coins didn’t even exist. To account for this, Republican legislators have now sent a letter “strongly urging” the group to update their cryptocurrency tax guidelines.
The five Republican representatives David Schweikert, Darin LaHood, Brad Wenstrup, Lynn Jenkins and Kevin Brady stated, “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.”
The lawmakers initially sent a letter to the IRS back in May, accusing the department of going after an increasing amount of cryptocurrency-related violations without producing any guidance for taxpayers. In fact, it also stated that, as of 2016, the department had failed to provide a detailed strategy as to how these digital assets would be dealt with in the future. Therefore, stating that going after individuals for “cryptocurrency tax evasion” was unreasonable, as they had failed to update their own rulings, even to those who’d at least attempted to report their crypto profits.
In the four years since the initial laws were put into place, there have been numerous changes which have further complicated things. Before, one could exchange personal property such as cryptocurrencies for other “like-kind” property without triggering a taxable event. This was helpful for crypto-enthusiasts who wanted to trade one type for another. Since that section has now been removed, this means every trade from one token to the next should be treated as sale of property and thus, subject to capital gains taxation.
Sound confusing? That’s because it is. However, as a CPA, you’re in a unique spot to create a lucrative revenue stream amidst the chaos. At BitTaxer, we make keeping up-to-date on all of this our business, so you can improve yours. As regulation becomes clearer, there will be more people entering the space. By getting knowledgeable about crypto taxes now, you’re getting ahead of the curve—and BitTaxer makes the process super easy and low-impact for you. All you have to do is import the transactions from your client’s virtual currency exchange of choice, answer a few questions, and then you’ll get a report to file for your client, or an exported file that easily integrates with your chosen tax software. We’ll even send you leads when you join our BitTaxer CPA Network.
Still have questions about virtual currency taxes? Contact us. We have a team of crypto-savvy CPAs who can help you out.