The Internal Revenue Service (IRS) is working on cryptocurrency taxation guidelines and it’s treating the matter as a priority. This is according to a letter sent by Charles Rettig, an IRS Commissioner to Minnesota Rep. Tom Emmer. The IRS intends to overhaul its current crypto taxation methods to improve clarity for taxpayers, the commissioner indicated.
Crypto taxation has been a subject which most governments have refrained from addressing. Given the nascence of the asset class and the varying definitions across jurisdictions, it has been almost impossible to have a universal taxation policy. Reports have emerged revealing that only a very small percentage of crypto holders pay taxes at all. Credit Karma, the American credit score company, revealed that out of the 250,000 users who filed tax returns using its platform, those who mentioned cryptos were less than 100.
The decision by the IRS is therefore long overdue. The agency has been treating cryptos as property, with a notice issued years ago indicating that ‘existing tax principles applicable to property transactions apply to virtual currency transactions.’ This has done little to demystify crypto taxation. The IRS has thus been working with internal and external stakeholders to identify areas where needed and helpful additional guidance can be provided. Commissioner Rettig concluded:
“I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance. Specifically, your letter mentions (1) acceptable methods for calculating cost basis; (2) acceptable methods of cost basis assignment; and (3) tax treatment of forks. We have been considering these issues and intend to publish guidance addressing these and other issues soon.”
The commissioner was responding to a letter sent by 21 members of Congress to the IRS in April, demanding clarity on the issue. The 21 were all members of the Congressional Blockchain Caucus, chaired by Tom Emmers.
The letter demanded that the agency address several ambiguous factors including the tax treatment for forks as well as clarity on the methods that the agency uses in its calculation of the cost basis of cryptos.
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