The Wall Street Blockchain Alliance (WSBA) Asks the IRS to Illuminate on its Crypto Tax Categorization
On the Internal Revenue Service’s (IRS) most recent move to classify cryptocurrency assets under the property class, US cryptocurrency community is grim with the decision of the IRS after it has categorized crypto assets under property class in its regulatory guidance directives for virtual currencies.
The cryptocurrency firms are thus in a mode of challenging the IRS on its definition of ‘Crypto-assets.’ The majority of them contemplate that this is an additional compliance and reporting encumbrance on their tax accounting regime.
The Wall Street Blockchain Alliance (WSBA), a non-profit Crypto Trade Organization has corresponded with The IRS recently displaying their reluctance about the proposed categorization of the crypto assets under the property. In the letter to the IRS, they have broadly covered issues related to staking, airdrops stablecoin, loans among others. They also have expressed that the current classification of cryptocurrencies might not be appropriate but the additional compliance and reporting might create a nuisance and inconvenience for the crypto firms.
It apparently shows no value addition to the taxpayer as well as it is inadequate for the merchants as to the date they are not accepting crypto-currencies as payments for retail shopping or services.
Kell Canty, CEO of Crypto Accounting firm Verady said," one of the signatories to the letter said," recent draft legislation proposing exemptions based on the amount of potential capital gains may further complicate the already complex accounting and reporting issues around crypto-assets by mandating circulating capital gains on every transaction.’’
It is noteworthy that recently in last month, Verady in collaboration with media giant Thomson Reuters has developed blockchain-based crypto- taxation software tool “Virtual Currency Organizer” to bring the cryptocurrency industry under tax regime.
The WSBA is pressurizing the IRS to resolve to establish a ‘De minimis exemption for both individuals and merchants’ that would establish a minimum transaction value constraint for tax reporting purposes. It will thus minimize the compliance obligation on individual crypto users and the other involved parties.
The letter has recommended certain points indicating about implications of crypto-assets including the varied tax structure treatment based on their usage, cost basis and fair market value (FMV) is determined for cryptocurrency assets.
WSBA also seeks more clarity for crypto-assets reporting and disclosure and transparency on the tax treatment for airdrops as well. It is asking for clear directions about how to treat stable coin issuances for tax purposes and if they should be exempted from like-kind exchanges.
The association also wants clear guidelines about the implications of treating crypto assets as intangible assets, Clarification on potential tax implications of the transfer of ownership loan and hypothecation of assets regarding decentralized finance, tax implications of taking a stake specific blockchain.
The letter suggests the IRS to continue to engage in a proactive and iterative process toward working on new principles and revenue decrees and also additional clarifications on existing guidelines.
IRS Prior Attempts for Crypto Tax Obligations
In the past years, the IRS has issued several warning statements to the cryptocurrency users about the guidance activated from 2014. An FAQ has also been posted on the website of the IRS to assist the crypto tax users to pay their taxes. In 2019, it also had issued cautionary notices and educational material to instruct the taxpayers about the crypto-related taxes.
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CBW - External Analyst