IRS Planning Summit With Cryptocurrency Startups
TLDR: The IRS is planning to hold a cryptocurrency summit next week as part of an effort to “balance taxpayer service with regulatory enforcement.” The summit comes as cryptocurrency firms continue to seek a defined regulatory framework to address lingering tax questions.
What’s Happening This Week: The Internal Revenue Service is planning to hold a March 3rd summit with cryptocurrency startups and advocates to discuss the tax treatment of digital currencies, according to Bloomberg Tax.
Although the attendee list is not public, the summit invite says that the IRS plans to hold four 90-minute panels with industry leaders on “technology updates, issues for cryptocurrency exchanges, tax return preparation, and regulatory guidance and compliance.”
The summit comes as the IRS has begun to more aggressively target alleged virtual currency tax evaders, despite unclear regulations when it comes to reporting cryptocurrency transactions.
Why it Matters to Startups: Cryptocurrency and blockchain startups have been pushing policymakers to provide greater regulatory certainty for the burgeoning industry as the IRS and other federal agencies have upped enforcement related to virtual currency transactions.
The IRS published updated guidelines last October to help taxpayers “better understand their reporting obligations for specific transactions involving virtual currency,” although the rules did not address issues such as capital gains, earnings from unwanted airdrops, and micro transactions. The U.S. Government Accountability Office also released a report earlier this month that found that parts of the guidelines were “not authoritative and [. . .] subject to change.” GAO even offered several recommendations for how the IRS could better clarify its crypto guidelines, but the agency refused to do so.
The upcoming summit provides an opportunity for the IRS to directly hear from cryptocurrency firms about how to better regulate the industry without choking growth and innovation. Kristin Smith—executive director of the Blockchain Association—told CoinDesk last week that she hopes the summit will be an opportunity for the agency to learn more about the ecosystem’s needs and concerns in order to develop better regulatory frameworks moving forward.
One particular concern for startups is the push to report every crypto transaction as a tax event, regardless of the size of the actual transaction. In 2014, the IRS determined that cryptocurrencies were a form of property, and that transactions—regardless of size—constituted a taxable exchange that would be subjected to capital gains. Last year, the IRS even sent letters to some 10,000 U.S. cryptocurrency owners warning them that they may have failed to report taxes on their cryptocurrency transactions.
The industry’s goal to use virtual currencies as a quick and easy medium of exchange is essentially undermined by the government’s push to make all transactions subject to agency reporting guidelines. But federal policymakers have introduced several bipartisan legislative proposals to address concerns about restrictive IRS regulations governing cryptocurrencies.
One proposal from Reps. David Schweikert (R-Ariz.) and Suzan DelBene (D-Wash.)—The Virtual Currency Tax Fairness Act of 2020—would address the IRS’s 2014 guidelines by exempting cryptocurrency transactions that have a calculated gain below $200. Another bill—the Token Taxonomy Act from Reps. Warren Davidson (R-Ohio) and Darren Soto (D-Fla.)—would also clarify some of the conflicting state and regulatory rulings, including allowing the sale of digital assets to qualify for the benefits of the IRS’s “like-kind exchange” provision. Rep. Tom Emmer (R-Minn.) also introduced the Safe Harbor for Taxpayers with Forked Assets Act last year to prohibit penalties against crypto owners until the IRS “issues guidance on how to report gains or losses in ‘forked’ digital assets.”
There is bipartisan support for these types of legislative proposals, but they need to receive more attention from government officials and policymakers in order to pass. It’s important for lawmakers and the IRS to seriously consider the cryptocurrency industry’s feedback in order to ensure that unclear compliance requirements do not have a chilling effect on startup growth. Lawmakers should also continue their efforts to support crypto startups by working to ensure that even small transactions involving cryptocurrencies are not subjected to overly burdensome tax regulations.
On the Horizon.
The Federal Communications Commission’s February open meeting will be held at 10:30 a.m. this Friday. The commission plans to discuss a variety of items, including reforming the use of the C-band to promote next-generation wireless services and whether to change the TV white space rules to provide expanded broadband coverage.
The House Small Business Committee is holding an oversight hearing with SBA Administrator Jovita Carranz at 11:30 a.m. tomorrow. The Committee is also holding a hearing this Thursday at 1 p.m. to discuss “how to make small businesses a priority as Congress explores ways to improve the nation’s infrastructure networks.
