Crypto’s Infancy
The IRS’s only real guidance came in 2014, when Bitcoin was in its infancy and trading at a fraction of its current value of about $10,000. IRS Commissioner Charles Rettig said in May that further guidelines would be coming soon. But in the meantime, investors and their tax advisers have had to make educated guesses about how to report income and pay taxes from virtual-currency transactions.
Bitcoin and other crypto assets aren’t currencies but property, the IRS said in 2014, and thus taxable at capital gains rates.
Whether you’re the investor or the tax accountant, tallying crypto tax bills is difficult. Virtual currencies operate on blockchain technology, which links computers to verify and record transactions. To calculate a taxable gain or loss, investors need the ledger of every transaction between a crypto asset’s purchase and sale date. Separately, the crypto industry has long trumpeted the values of decentralization and lack of government control, so some investors simply may not disclose their holdings.
Shown Leniency
The IRS occasionally has shown leniency if taxpayers voluntarily disclose that they’ve evaded taxes, including U.S. citizens who hid income in offshore accounts. That program has since ended and the IRS doesn’t have one specifically for cryptocurrency non-compliance. However, the agency says it makes a practice of taking into account whether a delinquent taxpayer comes forward on their own accord when levying penalties and fines.
“Either you reported the income or you didn’t -- there’s not really a way out, other than for a lawyer to potentially negotiate less prison time,” said Jason Tyra, a certified public accountant focused on cryptocurrency. “The IRS does not lose on this issue.”
This article was provided by Bloomberg News.