The Internal Revenue Service (IRS) issues two new guidance for the cryptocurrency business owners in the United States who are involved in any kind of transactions based on virtual currency. With the amendments in the cryptocurrency guidelines by IRS, the government authority aims to make the taxpayers more specifically complaint to the taxation system. It is worth mentioning that the IRS’s new guidance regarding virtual currencies is the second-ever effort by the agency after five long years in this matter. IRS Cryptocurrency new guidance has all the answers to the taxpayers about dealing with virtual currencies in the United States.
The new guidance on cryptocurrency & virtual currency by the IRS is comprised of Revenue Ruling 2019-24 and frequently asked questions (FAQs). With the expansion in the virtual currency guidance from 2014, taxpayers will get better understood about their specific reporting obligations for particular transactions involving virtual currency. The common questions asked by taxpayers and tax practitioners are addressed in the new revenue ruling and these include tax treatment of a cryptocurrency hard fork. Furthermore, an additional set of frequently asked questions is also addressed related to virtual currency transactions for those taxpayers who possess virtual currency as the capital asset.
The IRS Commissioner, Chuck Rettig, shared his thoughts and said, “The IRS is committed to helping taxpayers understand their tax obligations in this emerging area. The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.”
With the popularity and gained value of digital currency in USA, the IRS has struggled a lot in the recent years to impose new laws and guidelines on the cryptocurrency taxation procedure. Long-standing tax rules are applied in the guidance, comprised of a requirement that assets held for less than a year are taxed at higher short-term capital gains rates. Those held for longer qualify for the 23.8% preferential rates. Moreover, taxpayers are also required to pay their taxes in the income when a coin splits in a transaction known as a “hard fork” and when coins are distributed through a so-called air drop. This requirement can give the taxpayers a worst nightmare as 3rd parties can also create tax reporting obligations for you by merely foisting on you an unnecessary/useless airdrop or by forking a network whose coins you own.
The new guidance by the IRS regarding virtual currency adds up to the previous IRS guidance regarding cryptocurrency in Notice 2014-21. The IRS is also asking for the public feedback and opinion regarding the IRS additional guidance on virtual currency taxation & obligations in USA. In the Notice 2014-21, general principles of tax law are applied by the agency for the determination of virtual currency as the property and asset for federal taxation purpose in USA. the complete IRS notice regarding new guidance is comprised of 16 FAQs that explains very well that how the general tax principles are applied to the transactions which involve virtual currency. Check the recently issued new form 1040 by IRS regarding cryptocurrency to get more assistance on the IRS new rules for cryptocurrency investors to report income in USA.
The initiative is taken by the IRS as many taxpayers who were involved in the virtual currency transactions may have failed to report their income and transaction properly to the agency that ultimately lead to failure in paying the resulting actual tax bill. The IRS is considering and applying a number of measures and efforts in cryptocurrency taxation to address probable non-compliance. If the taxpayers do not report transactions involving virtual currency or falsely report them, then they will be liable to strict tax penalties, fines and in severe cases, criminal prosecution. If you like to plan your taxes in USA to get rid of tax penalties, you can ask for an initial free consultation with us.