Anyone who follows our tax blog, or the digital currency industry generally, is already aware that the past few years have marked an exceptionally chaotic period for cryptocurrencies like Bitcoin (BTC). However, while you may already know that Bitcoin has experienced dramatic price fluctuations since 2017 – or that the IRS spent more than a year battling California-based crypto exchange Coinbase for access to thousands of customer records – you may not be up-to-date on the numerous legislative proposals, aimed at improving and standardizing the regulation of virtual currencies, that are currently winding their way through Congress. Our Bitcoin tax lawyers discuss just a few – and the future implications they may have for Bitcoin miners, sellers, investors, and other taxpayers.
Bills to Regulate Cryptocurrencies Pending in Congress
Our cryptocurrency tax attorneys have repeatedly discussed the ongoing difficulties faced by the IRS – which has already received several sets of recommendations, from sources like the American Institute of CPAs (AICPA) and United States Treasury Inspector General for Tax Administration (TIGTA) – in regulating, alongside other government agencies, cryptocurrency tokens like BTC.
For example, the Internal Revenue Service has stated in Notice 2014-21, which was the IRS’ initial effort at introducing cryptocurrency tax regulations, that, “For federal tax purposes, virtual currency is treated as property,” adding, “General tax principles applicable to property transactions apply to transactions using virtual currency,” before clarifying further, “Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.” However, the IRS is merely one among several government agencies with an interest in Bitcoin regulation, and thus, its classification of digital currencies as “property” may leave unanswered questions, or create non-uniform standards, for many businesses and individuals. For instance, the U.S. Securities and Exchange Commission (SEC), which regulates the financial industry, considers cryptocurrency tokens securities, like stocks and bonds, when they are issued as part of an Initial Coin Offering (ICO).
Congress may be able to provide a greater degree of clarity – and uniformity – through the introduction of new legislation, as it often has when technological innovations have emerged in the past. (For example, during the 1990s, the rise of the internet spurred Congress to pass the Telecommunications Act of 1996.) Below, we have compiled just a few of the cryptocurrency-related bills that are currently pending in Congress, which include the following:
- R. 3708
- Sponsor – Rep. David Schweikert (R-AZ)
- Committees – House Committee on Ways and Means (HCWM)
- Introduced – September 7, 2017
- Last Update – Referred to the HCWM on September 7, 2017
- Purpose – This bill would “exclude from gross income up to $600 in gain from the sale or exchange of virtual currency for other than cash or cash equivalents.” After 2018, the $600 amount would be adjusted to account for inflation.
- R. 6721 (FinCEN Modernization Act of 2018)
- Sponsor – Rep. Ted Budd (R-NC)
- Committees – House Committee on Financial Services (HCFS)
- Introduced – September 6, 2018
- Last Update – Referred to the HCFS on September 6, 2018
- Purpose – The purpose of this bill is to provide the Financial Crimes Enforcement Network, or FinCEN – the same organization which processes online FBAR submissions by taxpayers who must file the FBAR to report foreign bank accounts – with better technological equipment and resources, so that FinCEN may more readily “monitor cryptocurrencies… for their potential use in money laundering and cyber and data security breaches.” In addition, this bill seeks to “facilitate FinCEN’s ability to exchange and use information between other offices and bureaus of the Department of the Treasury, as well as other departments within the Federal Government.” Of course, improved technology and increased intergovernmental coordination both signal greater danger for cryptocurrency holders with unreported Bitcoin – especially with the introduction of new IRS enforcement programs targeting Bitcoin users.
- R. 6973 (Safe Harbor for Taxpayers with Forked Assets Act of 2018)
- Sponsor – Rep. Tom Emmer (R-MN)
- Committees – HCWM
- Introduced – September 28, 2018
- Last Update – Referred to the HCWM on September 28, 2018
- Purpose – As its title implies, the purpose of this bill is to “provide temporary safe harbor for the tax treatment of hard forks of convertible virtual currency in the absence of administrative guidance.” For more information on this subject, we would direct interested readers toward our article discussing cryptocurrency hard forks, which explains what hard forks are, what sorts of tax consequences they can have, and how they differ from stock splits.
Bitcoin Tax Lawyers Can Help You Report Cryptocurrency to the IRS
In a turbulent political era many would say is shaped by the forces of gridlock and partisanship, it remains to be seen whether the aforementioned bills, or others like them, will successfully make it through Congress to become law. However, regardless of the bills’ ultimate fates in Congress, one fact is already certain: the IRS is continuously tightening and reworking extant Bitcoin tax regulations, the enforcement of which has become a top priority in recent years.
Taxpayers are expected to comply – despite the fact that the pertinent regulations are often unclear, contradictory, or sparse. Make sure you protect yourself by working with an experienced tax attorney who is highly knowledgeable in the specific area of cryptocurrency tax compliance, like David W. Klasing, founder of the Tax Law Office of David W. Klasing. A dually certified tax attorney-CPA with more than 20 years of tax experience, clients trust Mr. Klasing to help them report Bitcoin transactions, mitigate civil penalties, and stay on the right side of the law. Mr. Klasing also represents taxpayers in IRS Bitcoin audits, including IRS appeals representation. To arrange a confidential, reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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