How IRS’ New Guidance Affects Cryptocurrency Owners
As digital currencies and virtual assets get more attention from international financial and legal regulators, the IRS tries to keep up by updating its 2014 policy, which categorized cryptocurrencies as ‘property’ and not as any kind of currency. Now, the IRS issued two new guidelines for taxpayers who are involved in crypto transactions.
According to the old guideline, each transaction of digital assets, even individual trades, swaps between tokens, and wallet changes should be taxed, considering crypto was treated as property, and not as a virtual medium of monetary exchange.
The IRS is now upscaling its views on cryptocurrencies, as regularly observed by various governments, and central banks all over the globe the past couple of months, amid the introduction of Facebook’s Libra.
The guidance called the “Revenue Ruling 2019-24“, empowers taxpayers to better understand their reporting obligations for various types of digital currency transactions, including specific guides on the treatment of a hard fork, and those who hold virtual currency as a capital asset.
Alongside with the new ruling, the IRS also made publically available a FAQ (frequently asked questions), which acts as an informal guide expected to be spread fast among taxpayers.
“The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.” – IRS Commissioner, Chuck Rettig said in a statement.
On one hand, it feels like we should be happy about the fact cryptos are finally acknowledged and accepted even by government bodies. On the other hand, I think that this is just a move to maintain relevance in the financial power-broker scene, sucking on people’s money even if it’s generated under an alternative monetary system they barely understand.
It seems like a highly-ironic scenario to me, where the IRS says something like: “You’re making money of crypto? Share some with us, otherwise, we will investigate you for tax avoidance and we still get paid according to the law”.
Earlier this year, the IRS has sent more than 10,000 educational letters to taxpayers, making sure they’re on the same page, while at the same time, it helped them in establishing a chronological checkpoint, where they could rely upon during future claims against taxpayers who failed to report their crypto activities as requested.
Taxpayers who failed to report their crypto activities, if deemed necessary could be liable for extra taxes, fines, and even interest. In some scenarios, taxpayers could be subject to criminal investigations, charged with tax-evasion and money-laundering.