U.S. Lawmakers Ask IRS To Focus on Simplifying Cryptocurrency Taxation
Cryptocurrency, Taxation–In an open letter submitted on Wednesday, members of the United States Congress made a bid to the IRS to shift practices away from fretting over the enforcement of cryptocurrency laws and to instead seek simplification. While research has repeatedly found that taxes paid on cryptocurrency gains and crypto-based transactions is abysmally low compared to other sectors of the market, many within the industry–including average investors–cry foul over the convoluted tax structure. Some of these investors blame crypto tax evasion, in large part, on the confusing and often unfair structure of the current tax laws, which they find to not only be unfavorably biased against the investment class, but nearly impossible for the average investor to keep up with.
By requiring all trades to be submitted as part of taxable and appreciable gains the IRS has signaled to the industry that they have no interest in finding a tax solution that is both comprehensive and easy to follow. With the low cost of trading on cryptocurrency platforms relative to stock brokerages and the elevated price volatility requiring frequent trades, some investors find themselves executing hundreds, if not thousands of trades in a year–a process that becomes an immediate headache come tax season.
In a letter to acting Internal Revenue Service commissioner David Kautter, congressional members David Schweikert, Darin LaHood, and Brad Wenstrup, Kevin Brady and Lynn Jenkins echoed the concern of the average cryptocurrency investor by imploring the IRS to seek a better framework for cryptocurrency taxation, as opposed to devoting the majority of resources towards enforcement and corralling tax evaders. The letter specifically calls out IRS officials for their failure in working towards a more simplified tax code, in addition to stating that the department has had ample time to better deal with cryptocurrency over the pat several years,
“the IRS [has] continue[d] to expand its enforcement activities [but] without issuing any further guidance for taxpayers.”
While the congressional leaders are in no way advocating tax-evasion or the systemic condition of most cryptocurrency traders and investors paying minuscule portions of what they actually owe to the government–if at all–they do blame the IRS’s current rent-seeking process of enforcement as a short sighted approach. There is no way of telling whether cryptocurrency-based tax evasion will decrease with a simplified tax structure (it could be endemic of the industry and the investors that constitute it), but the current complexity does not lend itself to any feasible or reasonable form of taxation. The end result has been a yearly embarrassment of statistics published finding that cryptocurrency taxes are being paid in only a fraction of their full amount, further implicating the IRS in the process and putting greater pressure on reform.
While 2018 has constituted a predominant bear cycle, the end of 2017 saw many cryptocurrency investors benefit from double and triple digit price appreciation over a short timespan. A common refrain through investment circles became ‘make sure to pay your taxes,’ with the emphasis on avoiding drawing unwelcome attention from the IRS and U.S. government over the capital being made in cryptocurrency assets.