This month, the United States Government Accountability Office (GAO) released a report providing recommendations to improve IRS virtual currency tax guidance and provide additional insight for consumers calculating their taxes on crypto before April 15 and in years to come.
The GAO asked to review existing IRS guidance and the agency's efforts to help the growing number of cryptocurrency and digital asset consumers navigate how to claim crypto on taxes and ensure virtual currency tax compliance.
What the GAO found:
“Taxpayers are required to report and pay taxes on income from virtual currency use, but the Internal Revenue Service (IRS) has limited data on tax compliance for virtual currencies. Tax forms, including the information returns filed by third parties such as financial institutions, generally do not require filers to indicate whether the income or transactions they report involved virtual currency. IRS also has taken some steps to address virtual currency compliance risks, including launching a virtual currency compliance campaign in 2018 and working with other agencies on criminal investigations.
In July 2019, IRS began sending out more than 10,000 letters to taxpayers with virtual currency activity informing them about their potential tax obligations. IRS’s virtual currency guidance, issued in 2014 and 2019, addresses some questions taxpayers and practitioners have raised. For example, it states that virtual currency is treated as property for tax purposes and that using virtual currency can produce taxable capital gains. However, part of the 2019 guidance is not authoritative because it was not published in the Internal Revenue Bulletin (IRB). IRS has stated that only guidance published in the IRB is IRS’s authoritative interpretation of the law. IRS did not make clear to taxpayers that this part of the guidance is not authoritative and is subject to change.”
Click here to read the entire report, and reach out to Dmitri Alexeev, co-leader of BPM’s Blockchain and Digital Assets team, for additional information.
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