News by Blockonomi: Osato Avan-Nomayo
For the Internal Revenue Service (IRS) bitcoin tax payment has become a matter of priority, as the tax agency recently distributed over 10,000 letters to different bitcoin investors. The IRS has tried to curb the issue of tax evasion from virtual currency holders, albeit without a clear crypto tax guidance.
The IRS, the body responsible for collecting taxes from taxpayers in the United States, released a bitcoin tax guide in 2014, known as the notice 2014-21. In the notice, the IRS classifies digital currency as property, and as such tax laws associated with property in the U.S. is applicable to virtual currency.
However, many critics and experts have stated that the bitcoin tax guideline back in 2014 lacks clarity and does not fit into the ever-evolving virtual currency market. Many Americans are confused about how to report bitcoin taxes, with some unknowingly incurring debts.
Crypto users have therefore called on the IRS to issue a more robust tax guideline that better informs taxpayers and assist them in meeting their tax obligations when using bitcoin and other cryptocurrencies.
Charles Rettig, the IRS Commissioner, responded to a letter from a Congressional Blockchain Caucus, asking the IRS to provide more clarification for U.S. crypto user. According to Rettig, the tax body was gearing up to publish another crypto tax guidance.
While the awaited guidance isn’t out yet, the IRS distributed over 10,000 letters to virtual currency investors. According to Bloomberg, the warning letters basically had two tones – a severe tone and a gentler tone.
While the letters with the “severe” tone instructed digital currency investors to come clean with their crypto transactions carried out between 2013 to 2017, the “gentler” letters encouraged investors who may not be aware of their tax obligations to file an amended or delinquent return.
In Your Best Interest, Report to the IRS
The IRS further warned that it would check accurate sources such as financial institutions, to verify taxpayer’s responses.
Different tax experts voiced opinions concerning the IRS warning letters, with most of them urging investors to report themselves to the tax authority.
A Chicago-based tax litigator, Guinevere Moore, said the tax agency was using the letters to coerce bitcoin tax evaders into complying with tax rules, rather than tow the path of prosecution.
Moore added that the recipients of the “gentler” letters are most probably students who engaged in crypto trading without the knowledge of their parents or didn’t know how to report their crypto transactions. To these categories of recipients, Moore advised they file an amended return.
Another tax lawyer, James Creech based in San Francisco, said hiding from the IRS was a waste of time. In Creech’s words:
“For 90% of people it’s not worth the time or the effort to fight or hide from the IRS. Amend the returns, take the lumps, pay the tax and penalties and consider yourself lucky to have crypto gains instead of crypto losses.”
Creech, was, however, quick to warn that investors who didn’t report large crypto transactions in the past should avoid filing an amended return as it would implicate the taxpayer. Instead, such individuals should seek advice from a lawyer.
Former Deputy IRS Commissioner and tax lawyer, Mark Matthews, added that it would be dangerous for cryptocurrency investors who lie to the tax agency, especially recipients of the harsh letter.
For Jason Tyra, however, whatever decision the crypto investors make wouldn’t make any difference as there is no safe path. Tyra added that negotiating a lesser prison sentence was the way out.
Bitcoin Tax Laws Across the Globe
Tax authorities in different jurisdictions appear to be keen on strict bitcoin tax adherence. Blockonomi reported in 2018 that the Spanish Tax Authority launched a program aimed at identifying cryptocurrency holders/investors and get these crypto holders to pay taxes.
Australia, on the other hand, has laid down tax laws that are unfavorable for digital currency holders. The country’s draconian crypto tax laws forced a virtual currency holder to pay a whopping 500% tax on virtual currency holdings.
In May 2019, Her Majesty’s Revenue and Customs (HMRC), the tax agency of the UK, released an updated tax guideline for digital currency investors.
However, there are other jurisdictions that waive bitcoin tax. The Inland Revenue Authority of Singapore (IRAS) recently released a draft that would exempt bitcoin and other cryptocurrencies from the Goods and Services Tax (GST).
Other countries where bitcoin transactions aren’t taxed include Malta, Switzerland, Belarus, Malaysia, Portugal, and Germany.