Yesterday’s news that the IRS has issued tax guidance on bitcoin has not surprisingly spurred debate on social media. The tax authority in the United States stated that bitcoin should be declared as property, not currency.
Further, the tax guidance instructs users of the digital currency to pay capital gains where applicable, meaning that users could have to track every single one of their transactions in order to remain in compliance.
Chiming in is the Bitcoin Foundation. The Foundation released a statement on Wednesday declaring the IRS notice “unnecessarily cumbersome”‘ to users of bitcoin.
[The] tax treatment of Bitcoin as a property, and not a currency, may make compliance with tax laws unnecessarily cumbersome and imposes untenable recording and reporting requirements on its users.
Alongside users, the Foundation says the guidance is “detrimental” to small businesses and underbanked individuals:
When it is used as a currency, Bitcoin should be a frictionless means of paying for goods and services. The tax laws currently permit individuals to ignore small gains and losses in foreign currencies. Similar treatment for digital currencies would harmonize the law with the way most people actually use digital currencies. Artificially characterizing this use case as a transaction in property would make one of the most innovative features of this technology hard to use for those who wish to be compliant.
The Foundation says that the Internal Revenue Service didn’t “seek meaningful input from the digital currency industry or the public at large.”
As a result, the guidance creates a poor framework for innovation. To the extent that the tax code compelled this unwieldy outcome, a more open process would have identified the limitations of the statutory language and facilitated a dialogue between IRS and the appropriate legislators to address those limitations.
The statement, written by Marco Santori (Chairman, Regulatory Affairs Committee), closes that the Foundation “welcomes the opportunity to provide more formal comment to IRS in the coming weeks.”
For many, the IRS’ tax guidance on digital currency is just what they expected. Others, on the other hand, are upset by the fact they’ll be responsible for calculating losses/gains on every transaction they do.
It is indeed cumbersome, but do you think the IRS will amend their tax guidance in favor of the digital currency community? [source: Bitcoin Foundation]