If you’ve entered the crypto market and invested in Bitcoin before 2017 or during the early part of that year, you may have tripled or even quadrupled your investment. It was all because of the lack of regulatory clarity, not to mention the speculative nature of digital currencies that made Bitcoin go from around $1,000 in early 2017 to near $20K.
Considering the Wild West nature of cryptocurrencies especially last year, it was imperative for lawmakers to make the necessary changes in regulations in order to adapt to the changing times. And this is a common theme for different regulators from different parts of the world. However, there is no single consensus on what it should be. Malta has welcomed cryptocurrency-related ventures while China imposed a crackdown on anything related to cryptos.
The US Securities and Exchange Commission has clarified that Bitcoin and Ethereum are considered commodities and not as securities. And now, a group of US legislators asked the Internal Revenue Service to update the guidelines that can clarify how to report profits from cryptocurrencies.
The Lack of Clear Guidelines
On September 19, five representatives namely Kevin Brady, David Schweikert, Lynn Johnson, Darin LaHood, and Brad Wentstrup collectively urged the IRS to issue a guideline that can help those who are investing in cryptocurrencies via trading or other means.
These Republican lawmakers sent the letter last May. They are concerned regarding the decision to taking a closer look at crypto related violations without adopting a “comprehensive virtual currency strategy”. The aim of the comprehensive virtual currency strategy is to help taxpayers know exactly what to do.
In this week’s letter addressed to the IRS, it says that “More than a year after our initial letter, the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers. We, therefore, write again today to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies”.
Evolution of Cryptocurrencies
The IRS guideline dates back to 2014. During those times, the value of Bitcoin was simply traded a fraction of its all-time high. And also, there was a fewer number of altcoins during that time. However, today, things have changed. There are over a thousand other altcoins and cryptocurrencies have become mainstream. In fact, even institutional investors are now taking interest in digital currencies.
In 2014, the crypto assets were then categorized as “property”. This means that the taxpayers pay capital gains on any profits that have materialized from the coins. And yes, even if they are disposing of them via transactions such as buying small items in crypto-friendly business.
The letter does make a strong point. One of its concerns is that the IRS is not doing enough in order to advise taxpayers on how to settle their obligations. They wrote that “key component of the IRS’s duties as the nation’s tax administrator is to assist taxpayers in understanding what their tax obligations are and how they may best meet them. A failure to put forth adequate guidance severely hinders taxpayers’ ability to do so. The IRS has had four years to work through these issues since its preliminary guidance was issued, providing more than adequate time for the IRS to thoughtfully consider what additional information is needed. “