Tax preparers are worrying about those newer types of crypto transactions, according to Klasing. They’re also spooked by the spate of ICOs that may have skirted U.S. Securities and Exchange Commission rules, he said.
“The government is basically just telling practitioners to take a wild-ass guess,” he said.
An IRS spokesman said that in addition to the agency’s 2014 guidance, taxpayers should look at other rules governing an exchange or transfer of property and find the “factual scenarios that most closely resemble their circumstances.”
Coming Clean
Paying the tax man is relatively new for an industry built on anonymity and avoiding government control. For this filing season, many investors who have been trading for years will “come out of the woodwork” and disclose crypto on their returns for the first time, according to Jeffrey Kahn, a tax lawyer in Irvine who works with digital-currency holders. Popular exchange Coinbase told about 13,000 users in February that it would be turning over their account data to the IRS after losing a court fight to keep records private.
The government is warning crypto investors that they must own up to their purchases. The IRS said in March that if taxpayers don’t “properly report” their transactions, they could face penalties and in extreme cases, criminal prosecution.
Accountants need to be mindful as well. If they sign off on a return that understates a tax bill due to “unreasonable” arguments or “willful or reckless conduct,” they can face penalties of as much as $5,000 or 50 percent of the fee paid.
DIY Confusion
For do-it-yourselfers, tax-prep companies offer resources for digital-currency buyers. TurboTax’s support site has 15 pages of questions tagged to “bitcoin,” a help center and a brief crypto tips page.
H&R Block Inc. has a four-part explainer on the topic, as well as an online community forum for crypto queries. In it are hairy questions such as whether taxpayers are eligible for deductions if their Bitcoins are stolen.
Luis Guerra, a copywriter in Seattle, tackled his return on his own and says he’s still wondering if he did it correctly. He, like many others, bought cryptocurrency in December after watching a friend get rich quick, but hadn’t considered the tax implications.
After a lot of Googling -- and getting a lot of misinformation -- Guerra ended up using a website that could generate a report of his buys and sells across exchanges, and uploaded it to TurboTax. He followed the instructions to a T, but said the process was still confusing -- so much so that he almost gave up on trying to figure it out.