Bitcoin Global News (BGN)
October 29, 2018 -- ADVFN Crypto NewsWire -- An advisory committee
of the U.S. Internal Revenue Service (IRS) published a report of
their current issues. One of the biggest gray areas they are
dealing with is cryptocurrency use. They cite the need for more
research and are pushing for additional tax guidelines
cryptocurrency use. In 2014 the IRS issued commentary specifically
on digital currencies, where taxpayers were instructed to treat
them as a property, but this doesn’t nearly bridge the
gap.
The issue for regulators in the U.S. continues to appear like a
square peg in a round hole situation. Existing financial structures
simply don’t have the means to incorporate digital currencies. The
overall issue is difficult for regulators to even begin with,
because even the subject definition is vague - cryptocurrency,
digital currency, virtual currency, blockchain token, and so
on.
Cryptocurrency vs. Virtual Currency
The report begins with drawing this distinction, where the IRS
cites the European Banking Authority’s definitions, as countries in
the EU have been drastically more progressive with research and
effective regulation on the new financial
technology.
“Virtual currency is a type of “digital currency,” and is defined
by the European Banking Authority ‘a digital representation of
value that is neither used by a central bank or public authority
nor necessarily attached to a fiat currency but is accepted by
natural or legal persons as a means of payment and can be
transferred, stored or traded electronically.’ In turn,
cryptocurrency is a category of virtual currency in which
encryption techniques are used to regulate the generation of units
of currency and verify the transfer of funds.”
But this distinction in itself is not cut and dry, as encryption
techniques are vital to the operations of virtual currencies as
well.
Growing Use, Marginal Tax Gap Implications
In April, Fundstrat Global Advisors estimated that the
cryptocurrency-related U.S. tax liabilities could be as high as $25
billion. The figure was based on approximately $92 billion of
taxable gains for U.S. cryptocurrency investors. This group only
comprises about 30% of global cryptocurrency investors. who,
according to Fundstrat, comprise around 30 percent of
cryptocurrency investors worldwide.
However, even assuming a noncompliance rate of 50%, these tax
liabilities represent just shy of 2.5% of the estimated $458
billion tax gap. Further, this number would have been based on the
cryptocurrency market while nearing its all time high. The
variation in tradable value of cryptocurrency further complications
the ability of taxpayers to properly follow the law.
Further Questions
Are cryptocurrencies and virtual currencies to be treated the
same?
Can cryptocurrency be considered a specified foreign financial
asset?
How is the basis of type and value determined for cryptocurrency
that is sold?
Does broker reporting apply to cryptocurrency
transactions?
What is the future of taxation with the existence of anonymous
transactions? Thousands of cash transactions go untaxed every year
with fiat currency, but will growth in cryptocurrencies make this a
bigger problem?
By: BGN Editorial Staff