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Expertly analyzing the recent crypto tax guidance issued by the IRS, members of the Congressional Blockchain Caucus – a bipartisan group of members from Congress of the United States established to advance cryptocurrency and blockchain technology – penned down a detailed letter, exposing some of the flaws of these recent crypto tax guidance.
In the letter addressed to the commissioner of the United State’s Internal Revenue Service (IRS), Charles P. Rettig, the congressmen commended the effort of the IRS so far and applauded its swift response to the need for a crypto tax guide. That said, the congressmen urged the IRS to keep up the same spirit as they address new questions that the recent crypto tax guidance has raised.
Stating the obvious, the congressmen noted that the recently released crypto tax guide failed to serve the purpose it was meant to. For starters, the rules in the guide only compounded the question crypto users had before the guide.
Shedding more light on the issues, the congressmen pointed out the fact that the rules surrounding airdrops and unwanted forks are too abstract that they can’t be applied to real-life situations. Adding to that, the guidance tends to suggest that crypto users have ‘dominion and control’ and as such should be taxed on forked or airdropped assets whether they took any affirmative step or not.
From the letter:
“This creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies and would create inequitable results. We do not expect this is the intended effect of the guidance, and we urge the IRS to clarify the matter.”
Concluding the letter, the congressmen urged the IRS to treat the crypto space as an emerging market – which indeed it is. Therefore, there should be clear rules and reasonable interpretations.
The congressmen left the IRS office with three major questions and begged for an immediate response.
“Does the IRS intend to clarify its airdrop and fork hypotheticals to better match the actual nature of these events within the cryptocurrency ecosystem? When does the IRS anticipate issuing that clarification?”
“Does the IRS intend to clarify its standard for finding dominion and control over forked assets wherein some level of knowledge and actual affirmative steps taken are necessary to find that the taxpayer has dominion and control?”
“Does the IRS intend to apply the current guidance or any future guidance retroactively, or will the IRS issue proposed guidance that is subject to notice and comment?”
The letter is signed by congressmen from both main political parties in the U.S.: David Schweikert (R), Tom Emmer (R), Bill Foster (D), Matt Gaetz (R), Lance Gooden (R), Darren Soto (D), French Hill (R) and Warren Davidson (R). Members of the Congressional Blockchain Caucus have previously also asked for more clarity about crypto regulation from the SEC.
Crypto Disrupted Taxes
Citizens of every country are expected to be faithful taxpayers as these taxes are employed, ideally, in the smooth running of the country. Prior to the advent of cryptocurrency, there were good working tax rules guiding how taxes should be treated based on one’s income.
However, with crypto in the picture – and many cashing out big via this emerging financial technology – it became essential for governments to find ways to extend the tax rules into this emerging financial world. Else, citizens would use it as a good avenue to boycott tax payment.
In a bid to address the crypto tax issue, the U.S. IRS picked up the pace and drafted a crypto tax guidance. As the name suggests, this is supposed to be a guide, directing all crypto taxpayers on what is payable and how to go about it.
Unfortunately, the crypto tax guidance which was created to answer all the tax-related questions crypto users have, somewhat paved way for a whole lot of other questions. This is exactly why the congressmen decided to address the issue and approach the IRS Commissioner.