Cryptocurrency use risks triggering unwanted tax consequences.
Kevin Brady (R-Texas), chairman of the House tax-writing committee, and four other committee Republicans asked the IRS commissioner in a September 19 letter when the agency expects to issue more guidance on the US tax treatment of cryptocurrencies and what he expects that guidance to say.
The IRS warned taxpayers in 2014 that the US treats cryptocurrencies as “property” so that anyone spending or selling a cryptocurrency will be treated as having sold an asset and must report the gain or loss for tax purposes.
The letter said the IRS has used John Doe summonses to seek the records of half a million Americans who held cryptocurrencies between 2013 and 2015. The IRS issued a separate summons to the cryptocurrency exchange Coinbase Inc. in 2016 to gather records on virtual currency trades. The IRS launched a campaign in July to ensure that large businesses report any cryptocurrency gains.
Brady and the other Republicans said they are “concerned that the IRS is seeking to enforce guidance that does not adequately advise taxpayers of their tax obligations when using virtual currencies.” For more detail on the US tax treatment, see “Cryptocurrencies and Taxes” in the August 2018 Newswire. The only US guidance to date is in IRS Notice 2014-21.
Other countries are also struggling to come up with guidelines. The Organization for Economic Cooperation and Development, an organization of 34 developed countries, is in the preliminary stage of working through cryptocurrency tax questions and may make recommendations as early as December.
Canada said in 2013 that it would treat virtual currencies as commodities like gold and silver.
The US Commodities Futures Trading Commission treats then as commodities covered by the Commodity Exchange Act. The US Securities and Exchange Commission is wrestling with whether to treat initial coin offerings that are being used to raise capital to build out blockchain-based trading platforms as “securities” that would subject such offerings to regulation.
A US district court in New York upheld a criminal indictment in September for securities fraud involving sales of cryptocurrency tokens in an initial coin offering in a case called US v. Zaslavskiy.
For more on initial coin offerings, see “Anatomy of an ICO” in the April 2018 Newswire. For a global guide to legal and regulatory issues surrounding cryptocurrencies, see “Deciphering Cryptocurrencies” at http://www.nortonrosefulbright.com/knowledge/technical-resources/blockchain/deciphering-cryptocurrencies/.
Global cryptocurrency holdings are worth around $211 billion. Bitcoin has fallen around 50% in value and ether has fallen around 70% from peaks in late 2017.
Governments are concerned that the anonymity of cryptocurrencies allows them to be used for a range of illegal activities, including drug trades and money laundering.