Industry Demands Clarity at IRS Crypto Tax Summit

Industry leaders demanded greater crypto tax clarity at a recent summit organized by the IRS. These conversations are a “healthy sign” for Bitcoin and other digital assets, said one industry representative.

The event yesterday consisted of four panels: technology updates, issues for digital currency exchanges, tax return preparation, and regulatory guidance and compliance, with a host of big names.

Each panel included a representative from the IRS as well as experts from the crypto industry. Crypto companies represented included Coinbase, Ripple, Kraken, Chainalysis, and Coinsource. Some tax firms were also there, with a representative from RSM Tax.

The key takeaway from the summit: we need more clarity from the IRS on crypto tax issues, said industry representatives.

Even though crypto taxes have, thus far, mostly existed in a regulatory gray zone, times are changing. Tax authorities in the U.S. and around the world are putting substantial resources into fighting cryptocurrency-aided tax evasion.

Last year, the IRS sent more than 10,000 warning letters to crypto holders, saying, “taxpayers should take these letters very seriously.”

The problem lies with the fact that the IRS doesn’t treat cryptocurrencies as currencies, but instead as property⁠. This means that every cryptocurrency transaction, including crypto-to-crypto, creates a taxable event that is subject to capital gains tax.

If a U.S. citizen is exchanging, for example, BTC for ETH on a crypto exchange, the IRS will see this event (and they’ve been very clear on this) as a “disposition of property.” That means each time a Bitcoin is traded it is taxable.

And, of course, it opens a range of issues for everyone involved, including the exchanges, the taxpayers, the CPAs, and the IRS itself.

During the summit, the Agency brought up the notion of a central repository of exchange data that⁠, if created, would provide access to law enforcement. Fortunately, the idea wasn’t met with much enthusiasm. Many noted privacy concerns, and Coinbase and Kraken were immediately against the notion.

Instead, exchange representatives urged the Agency to bring more clarity on the exchange reporting requirements⁠. Specifically, on which tax forms should be issued to users.

IRS Virtual Currency Summit update from DC (exchange panel):

Are exchanges supposed to issue 1099s? if so, which type of 1099? 1099-B? 1099-K or 1099-MISC?@coinbase VP of tax asks the IRS. #cryptocurrencynews #aicpa #forbescrypto #TaxTwitter

— Shehan