For digital currency aficionados, the prospect of being hounded by the IRS is likely unsavory. Many people have flocked to the cryptocurrency world as a means of getting away from centralized currencies and the central banks that they are linked to. However, as the leading digital currencies have become increasingly popular, and as market capitalization for the industry has skyrocketed in the past few months, governmental agencies around the world (including the IRS) have become increasingly interested in the goings-on in the newly developed field.
According to Forbes, the IRS has been making attempts at identifying bitcoin users, issuing John Doe summonses to learn more about transactions, and more. Now, a bipartisan bill called “The CryptoCurrency Tax Fairness Act” may take some of the heat off of small-scale cryptocurrency users.
Tax Exemption for Transactions Under $600
The bill, introduced in the House of Representatives by Rep. Jared Polis (D-CO) and Rep. David Schweikert (R-AZ), stipulates that transactions under $600 be considered tax-exempt. The bill may eventually end up placing cryptocurrency accounts in a similar position to foreign bank accounts. Under IRS rules, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeds $10,000 at any time during the tax year generally must file a report of those holdings.
The CryptoCurrency Tax Fairness Act would help to clarify the IRS Notice 2014-21, which says bitcoin and other digital currencies are property for tax purposes, and not currency. This has ramifications for gains, losses, and what trades are. Payments made as wages in virtual currency are therefore taxable and must be reported on a Form W-2.
But part of the issue with this, according to Forbes’ report, is that Form 1099 and other related tax forms must account for the value of the cryptocurrency at the time of payment. Because cryptocurrencies are notoriously volatile, this can mean a lot of extra work and, potentially, a lot of extra payment in taxes. The bill wipes the slate clean, suggesting that any transaction under $600 is entirely exempt. Thus, employers paying in digital currencies would not need to worry about tracking gains for small transactions for tax purposes. The bill also calls for the Treasury Department to create guidelines for reporting on those profits and losses which are gained or lost from digital currency holdings.
This does not mean that the battle between the government and cryptocurrency users and exchanges is over. In fact, it could just be heating up. As China announced in the past few days that it would issue a broad ban on digital currency exchanges, many investors around the world are likely worried not only about how the disappearance of a Chinese market may impact their holdings, but also whether other countries may issue the same large-scale restrictions. (See also: The Rise of 'Private' Cryptocurrencies.)