IRS Refuses Watchdog Request to Clarify 2019 Crypto Tax Guidelines
The Internal Revenue Service will not clarify how taxes work with cryptocurrencies and digital asset transactions according to a US congressional watchdog’s report released on Wednesday.
Following Rep. Ken Brady’s (R-TX) request for clarity on how taxes are levied against cryptocurrency, the Government Accountability Office (GAO) published a report evaluating the IRS’ current approach and public guidelines on cryptocurrency.
GAO Recommends Disclaimer to 2019 Crypto Guidelines, IRS rejects
Following the report, GAO made recommendations to the IRS, as well as an additional recommendation to the Financial Crimes Enforcement Network (FinCEn).
The recommendations were, “GAO is recommending that IRS clarify that part of the 2019 guidance is not authoritative, and take steps to increase information reporting; and that FinCEN and IRS address how foreign asset reporting laws apply to virtual currency.”
In response to the recommendations, GAO reported that the IRS, “Agreed with the recommendation on information reporting and disagreed with the other two, stating that a disclaimer statement is unnecessary and that it is premature to address virtual currency foreign reporting.”
Despite the IRS’ refusal to disclaim the guidelines as non-authoritative, GAO believes a disclaimer would increase transparency and that IRS can clarify foreign reporting without waiting for future developments in the industry.
FinCEN agreed with GAO's recommendation.
Overall Clarity needed in US Regulatory Guidance
As reported earlier by Bloomberg Tax, while the IRS’ 2019 guidance answered some questions around the tax treatment of cryptocurrencies, they also raised new concerns among virtual asset stakeholders. Complying with tax requirements may be difficult, and the GAO report suspects that trading activity may be underreported due to a lack of clarity around what should be reported.
Prior to ending his presidential campaign, Democrat Andrew Yang had expressed his frustrations at the mixed communication from the main regulator bodies. He said “Right now we’re stuck with this hodgepodge of state-by-state treatments and it’s bad for everybody: it’s bad for innovators who want to invest in this space. So that would be my priority is clear and transparent rules so that everyone knows where they can head in the future and that we can maintain competitiveness.”
Perianne Boring, President and Founder of the Chamber of Digital Commerce has expressed similar regulatory frustrations as those presented by Yang.
In a recent interview with Blockhain.News, Boring commented, “In the United States, we have a very fragmented regulatory environment which has been an obstacle toward a framework that supports innovation—you have the SEC , that's looking at digital tokens and classifying them as securities; the CFTC that's also looking at digital tokens and classifying them as commodities; the IRS is taxing them as property, and FinCEN is regulating them as currency. There are just a lot of different regimes. And so, for the companies operating token platforms, there's a lot of regulatory uncertainty.”
The reality is that until regulatory bodies are able to clarify and demystify how innovation and investment can work in the US, innovation will be tentative and investors will be apprehensive.
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