Defining regulations regarding cryptocurrencies is a difficult task. In the United States, the IRS is responsible for issuing proper guidelines. In a recent letter, five members of the U.S. House of Representatives urge the agency to take more action in this regard. The current preliminary guidelines in place leave a lot of questions unanswered.
Lack of Regulatory Action by the IRS
It is not the first time members of the U.S. House of Representatives asked the IRS for further clarification regarding Bitcoin. A similar letter was sent in May of 2017. At that time, the enforcement actions by the government agency raised a lot of questions. Coinbase became subject to an official investigation. The exchange was forced to share specific details regarding cryptocurrency holders with the IRS in the process.
Most people expected this to be a sign of future regulation. With the information in hand, the agency could introduce new guidelines regarding virtual currencies. So far, no developments have taken place in this regard. Without proper guidelines, the chance of offering institutional-grade Bitcoin investment vehicles is nearly zero. This status quo causes a lot of friction and unrest among enthusiasts and politicians alike.
With no real changes becoming apparent, a new course of action needs to be taken. This is especially so because the IRS is intent on expanding its enforcement activities. As cryptocurrency holders do not know what to expect or which rules to adhere to, a problematic situation has been created. It is unclear why the agency is not issuing new guidelines for Bitcoin users at this time.
The Struggles to Date
It is evident the IRS will need to step up its game in this regulatory department. This second letter by the Committee on Ways and Means may have the desired effect in the long run. Finding the right balance between regulation and innovation is not easy. That is especially true when it comes to Bitcoin and other virtual currencies.
At the same time, one has to keep the timeline of events in mind. The IRS has shown an intent to regulate cryptocurrencies since 2014. Clarification of tax issues has been the first hurdle to overcome in this regard. In 2016, the lack of a comprehensive tax strategy became even more apparent. Two years further down the line, no additional progress has been made in this regard.
The IRS has reminded taxpayers there will be no leniency for not properly reporting the income gained from virtual currency transactions. Reminding the general public is a positive sign, but some further clarification is direly needed. The members of the U.S. House of Representatives hope to receive the necessary feedback by mid-October of 2018. After four years of research, the IRS has had more than ample time.
As the letter states:
We therefore strongly urge the IRS to expeditiously issue more robust guidance clarifying taxpayers’ obligations when using virtual currencies. We also ask that you provide a written response outlining where the IRS is in its efforts to issue updated virtual currency guidance, what the IRS intends to cover in this guidance, and a timeline for its release. In addition, to assist the Committee in better understanding this issue, we will be asking the Government Accountability Office to undertake an audit on this matter.
Do you think the IRS has had enough time to come up with proper cryptocurrency guidelines for taxpayers? Let us know in the comments below.
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