Why the IRS Should Treat Crypto as a New Asset Class

Publicado en by Coindesk | Publicado en

While some nations banned cryptocurrency marketplaces and services, the United States moved towards more stringent IRS enforcement by establishing a dedicated cryptocurrency team and forcing major exchanges like Coinbase to turn over user information on trades.

Increased IRS scrutiny does have a positive benefit: it adds a layer of legitimacy to the cryptocurrency world as, instead of banning cryptocurrencies, the US government is tentatively acknowledging it as a financial asset.

As a result, tax professionals in the cryptocurrency space are applying a hodgepodge of rules that historically have been applied to stocks, bonds and other tradable securities, real property, intangible property, and so on.

Without clear guidance from the IRS, the resulting non-consensus amongst cryptocurrency tax professionals has led to an environment where it seems even most accountants are hesitant to handle crypto taxes.

That is because the most recent meaningful statement from the IRS about cryptocurrency taxation came in 2014 when the agency specified that crypto was not actually a currency, and therefore even tiny gains were taxable and needed to be reported, unlike with actual foreign currency that has a de minimis exclusion for gains under $200. What is the IRS going to do when another government adopts a cryptocurrency as its national currency? The Marshall Islands intends to issue the Sovereign, or SOV, to supplement the USD as local tender.

De minimis exclusions Designate cryptocurrencies as a new asset class, complete with common sense rules that are customized for cryptocurrencies' unique use cases, as opposed to strained comparisons to semi-related asset classes.

Last in, first out or specific-shares should be the default accounting methods, as they more closely track the economic realities of investors buying fresh bitcoin or ethereum in order to transfer it to other exchanges and invest it in other cryptocurrencies.

Explicit tax deferral on cryptocurrency capital held within one exchange: When an investor trades cryptocurrency only for other cryptocurrencies without transferring it out of an exchange and being able to convert it to USD, for example, it seems a bit unfair that he or she would be expected to pay paper gains in USD that have not been realized.

While the dust settles on this tax season, my hope is that the new IRS cryptocurrency group will gather together a working group of industry practitioners tasked with building consensus around these topics and writing sensible regulations.

CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

x