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Leading virtual currency industry stakeholders have formed a coalition to lobby in Washington DC for more effective tax policies for virtual currency markets in the United States.
The Chamber of Digital Commerce and Steptoe & Johnson LLP, the international law firm, announced the formation of the Digital Assets Tax Policy Coalition on March 8 in response to what they see as a lack of clear guidance for issuers and users of virtual currencies such as Bitcoin, which have grown in popularity as a payment medium.
Led by the Chamber of Digital Commerce, industry participants include some of the leading exchanges, wallet providers, and transaction processing companies in the digital asset sector. Steptoe will serve as counsel to the Coalition.
To date, the only guidance issued by the IRS regarding virtual currencies is contained in Notice 2014-21, which was issued in April 2014. This says that, as Bitcoin and other digital currencies do not have legal tender status in any jurisdiction, they should be treated as property for US federal tax purposes, and, therefore, the general tax principles that apply to property transactions also apply to transactions using virtual currency.
"Clear tax treatment for digital assets is essential to ensure robust growth of this important sector," said Perianne Boring, President and Founder of the Chamber of Digital Commerce.
The coalition also says that clearer guidance would help the IRS enforce the tax laws in this area more effectively and lead to fewer disputes between the authorities and taxpayers.
"Tax solutions that allow the IRS to do its job without resorting to actions such as a John Doe summons will be of benefit to all," said Jason Weinstein, partner at Steptoe and co-chair of Steptoe's Blockchain and Digital Currency practice.
Weinstein was referring to an order issued by a federal court in the Northern District of California on November 30 authorizing the IRS to serve a John Doe summons on Coinbase Inc., a major virtual currency exchanger headquartered in San Francisco, to discover information on US taxpayers who transacted in virtual currencies, such as bitcoin, during the years from 2013 to 2015. It was said that, "because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS."
In comments made at the time of the summons, IRS Commissioner John Koskinen said that transactions in virtual currency "are taxable just like those in any other property," referencing the agency's 2014 guidance.
However, in December, the IRS was criticized by the Treasury Inspector General For Tax Administration (TIGTA) for its failure to implement a full virtual currency compliance program. "None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax non-compliance related to virtual currencies," TIGTA said.
The American Institute of Certified Public Accountants (AICPA) has also urged the IRS to provide additional guidance on how the existing US tax code should apply to virtual currency transactions.
In a letter to the IRS last June, Troy Lewis, Chair of the AICPA's Tax Executive Committee, observed that virtual currency transactions, "in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client's reporting requirements."
"The issuance of clear guidance in this area will not only reduce the confusion and burden for tax preparers, but also allow taxpayers to accurately comply with IRS rules."
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