Following the release of the first cryptocurrency tax guidance since 2014 which focused on filling crypto taxes, the IRS has disclosed that it will be focusing its attention on information reporting in the next guidance release. The service’s senior counsel Michael Desmond said during a Washington event hosted by the Tax Policy Center on 17 October.
This is because access to information reporting increases the level of tax compliance, Desmond stressed. To achieve this, the next guidance release will focus on guidance under tax code Section 6045 and how it relates to cryptocurrency. The code lays out information reporting requirements for any entities or organizations that serve as middlemen in exchange of property or services.
Expanding beyond the United States
The United States IRS is not just looking to get taxes from cryptocurrency investors within the U.S but is also considering extending its campaign beyond the shores of the United States. This is to ensure tax compliance on exchanges outside of the U.S to ensure those who use such exchanges still file taxes. To this end, the service is looking at international reporting in the next information reporting-based guidance.
I think that is a particularly important area going forward because we certainly recognize that without the international reporting there could be a trend to move some of these transactions offshore and that’s not a trend that we want to encourage.
According to Desmond, IRS is in talks with FinCEN to implement this as cryptocurrency held offshore are currently not reported for FBAR purposes. Such cryptocurrency holdings on foreign exchanges will be reported under the Foreign Account Tax Compliance Act
A much-needed addition
The IRS tax guidance released earlier this month has faced a number of criticisms. The guidance was meant to add to that of 2014 but it seemed to have worsened the confusion rather than clarify issues. First, it does not provide a suitable crypto taxes tool available to make the complex guidance easy to implement in practical tax filing and according to some key industry players say IRS does not seem to understand how airdrops and hard forks work.
Speaking with CoinDesk, executive director at Coin Center, Jerry Brito said:
While the new guidance offers some much-needed clarity on certain questions related to calculating basis, gains, and losses, it seems confused about the nature of hard forks and airdrops.
The crypto tax guide for the United States provides guidance on how to file taxes under different circumstances, but a bigger modification may be coming to capture the taxing of cryptocurrencies held on foreign exchanges after information on such holdings is captured in the next information-focused guidance. No date has been fixed for the release yet but it may not take 5 years again as the IRS seems ready to implement crypto taxation in the U.S.