U.S. Congressmen Jared Polis, a Colorado Democrat, and David Schweikert, an Arizona Republican have written Internal Revenue Service (IRS) Commissioner John Koskinen asking for additional guidance for reporting virtual currency transactions. They acknowledged the agency has offered taxpayers some virtual currency guidance in regard to taxation, but additional guidance is needed to assist businesses that accept virtual currency.
Guidance is also needed to help individual taxpayers, the congressmen noted in their letter. Guidance is needed to increase reporting on income gained or lost on virtual currency transactions.
Lawmakers Acknowledge IRS’ Past Efforts
The IRS has offered guidance on complying with tax compliance risks related to virtual currencies since 2007, the congressmen noted. The agency’s Electronic Business and Emerging Issues policy group has stated there are tax consequences related to virtual currency transactions. Current policies could lead to underreporting of such tax consequences.
In 2014, the agency released answers to frequently asked questions about virtual currency tax implications. The notice classified virtual currency as property and noted that a taxpayer could have taxable income as a result of certain transactions.
Taxpayers, according to the 2014 notice, are required to report taxable income from various transactions. They are required to include it as part of taxable wages, realized gross income from virtual currency mining, or realized capital gains or losses from the sale or exchange of such currency held as a capital asset.
Treasury Inspector Cites Shortcomings
In 2016, the Treasury Inspector General for Tax Administration (TIGTA) reviewed the IRS strategy concerning income produced from virtual currencies. The inspector reviewed 36 comments the IRS received and identified areas in which it would be helpful for the IRS to give detailed guidance on record keeping and tax compliance in relation to virtual currencies.
The inspector suggested the IRS revise third party information reporting documents to determine the amounts of virtual currency used in transactions that are taxable.
“We encourage the IRS to consider the recommendations of the TIGTA and take action based on those recommendations to increase taxpayer compliance with Notice 2014-21,” the congressmen noted in their recent letter.
IRS Urged To Engage Exchanges
Polis and Schweikert also urged the agency to communicate with virtual currency exchanges to gain a better understanding of their ability to report information, such as tracking realized gains or losses and the amounts of currency used in taxable transactions.
Days after the inspector general issued the report on the IRS’ strategy for taxing income related to virtual currencies, the IRS issued a summons to Coinbase to facilitate an investigation into possible tax evasion by users of virtual currencies at any time between January 1, 2013, through December 31, 2015.
Featured image from Shutterstock.