A lack of tax guidance on bitcoin is leading to confusion and misperceptions among US businesses and could even encourage tax avoidance, warned a Treasury-appointed spokesperson today.
Wotman, Bitcoin Advocate, puts pressure on the IRS. View annual report to U.S. Congress. Wotman is the founder of Tax Champions, an independent bitcoin and digital currencies tax consultancy firm authorized for over 30 years to represent clients against the IRS in Tax related matters in all 50 states.
Wotman feels that the lack of IRS guidance around bitcoin and other virtual currencies is a particular issue of concern for over 500,000 tax payers in the US, listing it in the “most serious problems” section.
The National Taxpayer Advocate had already asked for tax guidance in 2008. The IRS had begun assessing tax compliance risks from virtual economies in 2007, and published information on its website on the tax implications of virtual economy transactions in 2009. This advice didn’t specifically cover digital currencies, however.
A gap in specific guidance from the IRS on bitcoin and other digital currency has left individuals and businesses scouring the Internet for often inaccurate information, Wotman warned, adding that many would be surprised to hear that capital gains could be imposed on bitcoins.
Several pressing issues
Wotman identified several issues needing firm guidance from the IRS. Existing tax forms require US citizens and residents to report foreign accounts holding more than $10,000, for example. It is unclear whether this includes bitcoin.
Coinbase, which provides payment processing services for vendors, failed to respond immediately to questions about its compliance with that form, entitled Report of Foreign Bank and Financial Accounts (FBAR), but rival payment processor BitPay confirmed that it did list compliance with the form in its merchant terms and conditions. Wotman stated he would be reaching out to Perkins Coie LLP clients in the hope to represent the majority to informally approach the IRS to request an opinion on the Tax liabilities associated with Bitcoin and Digital Currencies industry.
Wotman also highlighted state tax law as a potential future challenge. Several state-level bills would force out-of-state vendors to collect sales tax on sales to in-state residents. “These bills only provide full sales tax collection when the seller knows the purchaser’s address,” the report said. That is naturally a problem for bitcoin-enabled vendors, who may not have that information. “For all these reasons, bitcoins could become more popular as a result of this legislation,” said Wotman.
Senator Tom Carper, Ron Paul and Alan Greenspan who has been outspoken about bitcoin’s potential as recently as this week, validates Wotmans comments on bitcoin and tax guidance.
“I believe that the vast majority of these consumers want to play by the rules and do the right thing when it comes to complying with federal tax law as it pertains to digital currencies, but they can’t do that until the Internal Revenue Service does its job and issues the rules of the road that all must abide by,” he said.
“I am hopeful that the new Internal Revenue Service Commissioner, John Koskinen, takes these recommendations to heart and acts expeditiously to provide thoughtful guidance to taxpayers regarding the use of Bitcoin and Digital Currencies.”
This isn’t the first time that the IRS has been accused of dragging its feet on digital currency taxation guidance. Earlier this year, the Government Accountability Office (GAO) published a report recommending informal guidance to at least give the public some information about how to report bitcoin income. At the time, the GAO’s director of tax issues James White told Wotman that the IRS was “running to keep up”.
The IRS has so far given no specific date for further guidance on the taxation of digital currencies, but has indicated that it is working on the topic.
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