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The government can’t spend resources to answer all of taxpayers’ questions about cryptocurrency taxation, but it may address the most important issues in guidance as soon as this year, an official said.
“There’s a very long list of potential issues” the Internal Revenue Service and Treasury Department could address, but “there’s no way in this environment that we’re going to be able to put out guidance on the majority of those issues,” said Karl T. Walli, senior counsel in Treasury’s Office of Tax Policy.
Most of the government’s resources are focused on implementing the 2017 tax act (Pub. L. No. 115-97), he said June 23 at a New York State Bar Association tax section meeting in Portland, Maine.
Walli said the IRS and Treasury are identifying areas where guidance is most needed and are pulling together a list of issues that reasonably can be resolved. “I think there will be some attempt to put out guidance on that in the calendar year.”
The only official guidance from the government on the taxation of cryptocurrencies—or virtual currencies—is Notice 2014-21, which says those assets are treated as property for federal tax purposes.
Practitioners and groups including the American Bar Association Section of Taxation and the American Institute of CPAs have asked for more clarity.
One gray area is the treatment of “hard forks,” which occur when there is a change to the software of a digital currency that creates separate versions of the blockchain. There are three official versions of bitcoin, for example: bitcoin (BTC), bitcoin cash (BCH), and bitcoin gold (BTG).
Another murky area is the role of tax in the context of initial coin offerings—an unregulated means of raising capital for new cryptocurrency ventures.
“In 2014 we dealt with all of the major issues that we knew existed at the time. Nobody had ever heard of initial coin offerings in 2014, and certainly nobody in government had ever heard of diverging forks,” Walli said. “So those issues were not addressed in 2014 because, as far as we knew, they didn’t exist.”
Now that four years have passed “and these issues are starting to emerge, we are starting to think about which issues we should be directing further guidance towards,” he said.
ICOs present an especially difficult challenge for the government, Walli said.
“‘Initial coin offerings’ is a common phrase you see used to describe a vast umbrella of transactions,” he said. “Until people can hone in on what exactly it is we’re trying to” provide guidance on, “it’s not likely that you’re going to see guidance on this.”
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