Washington, D.C. — Cryptocurrency advocates declare that cryptocurrency is exclusive and never topic to legal guidelines, together with tax legal guidelines, that apply to different belongings. With taxpayers getting ready to file their 2023 tax returns, a brand new Middle for American Progress report explains that present tax legal guidelines apply to digital belongings identical to every other belongings.
Many individuals have been lured by the exaggerated guarantees of cryptocurrency, and plenty of have misplaced a lot of their life financial savings from investing in these extremely risky digital belongings, worsening inequities in monetary markets and wealth accumulation. Whereas the way forward for digital belongings is unsure, the appliance of tax legal guidelines to cryptocurrency transactions typically is just not. This report outlines how the U.S. Treasury Division and the IRS ought to proceed to teach taxpayers in regards to the utility of tax legal guidelines to cryptocurrency transactions and to challenge steering within the few areas the place there could also be uncertainty. The report additionally calls on Congress to keep away from complicated customers with proposed laws except actually wanted.
The report identifies methods Congress, the Treasury Division, and the IRS can be sure that lack of compliance with the tax legal guidelines by those that interact in digital asset transactions doesn’t undermine the tax system, together with:
- Clarifying dealer and different info reporting: Whereas cryptocurrency brokers have leaned into the anonymity of transactions on the block chain, the Treasury Division and IRS have the authority to find out whether or not a digital asset is reportable or not and will use that authority to make clear reporting guidelines that apply to cryptocurrency.
- Closing loopholes: Congress and the IRS ought to take motion to shut the wash gross sales and constructive gross sales loopholes to stop tax avoidance.
- Clarifying when so-called arduous forks and airdrops give rise to taxable earnings: These transactions are distinctive to digital belongings however give rise to earnings in a lot the identical method as transactions involving belongings do.
- Modernizing guidelines for loans of cryptocurrency securities: Guidelines defining when beneficial properties and losses should be realized when securities are loaned amongst traders ought to be up to date to make sure that loans of digital asset securities are handled comparably to loans of different securities.
“A lot of the uncertainty surrounding the tax therapy of cryptocurrency stems from the business’s resistance to long-standing legal guidelines and rules designed to guard customers and preserve monetary market equity and stability. Permitting exceptions from these guidelines for cryptocurrency—an unproven and extremely risky kind of asset—would put customers and our monetary markets at risk,” mentioned Alexandra Thornton, senior director of monetary regulation at CAP and co-author of the report.
“Formalizing particular therapy or creating new tax subsidies for digital belongings would signify a hand on the scales by tax policymakers—incentivizing better funding in cryptocurrency and diverting capital away from much-needed investments in the true economic system,” mentioned Jean Ross, senior fellow at CAP and co-author of the report. “The Treasury Division and the IRS ought to act swiftly to challenge steering the place wanted to make clear the appliance of present legal guidelines governing earnings recognition and reporting to the cryptocurrency business and cryptocurrency transactions.”
Learn the report: “Cryptocurrency Income Is Taxable Income” by Alexandra Thornton and Jean Ross
For extra info or to talk with an professional, please contact Sarah Nadeau at snadeau@americanprogress.org.