The US House Committee on Ways and Means has urged the Internal Revenue Service (IRS) to provide clarity on the tax treatment of cryptocurrencies.
In an open letter, the Congressional representatives say the IRS is continuing to take enforcement action against investors despite only issuing preliminary guidance on how cryptocurrencies should be treated for tax purposes.
The IRS has used its John Doe Summons authority to seek the records of approximately half a million Americans who held virtual currencies between 2013 and 2015. In extreme cases, taxpayers can be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions.
“While the Committee appreciates the IRS’s need to undertake enforcement actions to ensure that taxpayers generally meet their tax obligations, in this case, we are concerned that the IRS is seeking to enforce guidance that does not adequately advise taxpayers of their tax obligations when using virtual currencies,” the Committee members write.
They warn that the IRS’s failure to provide adequate guidance severely hinders taxpayers’ ability to understand what their tax obligations are and how they may best meet them. “The IRS has had four years to work through these issues since its preliminary guidance was issued, providing more than adequate time for the IRS to thoughtfully consider what additional information is needed,” they argue.
The letter urges the IRS to issue more robust guidance for taxpayers, as well as a response outlining where it is in its efforts to issue updated guidance by no later than 17th October.
Similar concerns have been raised by other bodies, including the Association of International Certified Professional Accountants and the American Bar Association.