U.S. IRS Official Admits Some Crypto Tax Laws are “Not Ideal”

Crypto Regulation
U.S. IRS Official Admits Some Crypto Tax Laws are “Not Ideal”

A reporter’s experience dealing with authorities gave some insight into how they view the asset class – with the main takeaway being some officials believe that crypto tax laws are “not ideal.”

Crypto Taxes a Moot Point

Tax reporting on cryptocurrency holdings continues to be a mixed bag for those in the space and living in heavily-regulated countries like the United States. 

CoinDesk’s Nikhilesh De wrote today his experience dealing with tax authorities in the U.S. De found several instances of third-party providers and even the IRS unable to fully justify or explain the laws in totality.

“If a reporter who’s been embedded in the space is having this much trouble, imagine how hard it might be for a complete newcomer,” notes De. 

He revealed covering crypto taxes in-depth over the year at CoinDesk, liaising with “half a dozen certified public accountants, tax lawyers and other professionals about what the IRS’s issued crypto tax guidances tell us.”

One IRS official, who remained anonymous, told De:

“Taxpayers should take advantage of both the forms that exchanges are issuing to list taxable events and the different software tools that have been built to help simplify the process.”

The official added some of the guidance covered under existing legal structures is “not ideal.” However, the agency (IRS) is working to keep pace with the crypto industry, they added.

Staking, DeFi, and Margin Trading are Concerns

Meanwhile, staking has come to the regulator’s attention. Passive investing in cryptocurrencies, leave alone active, is a very obscure aspect of the market; one that not many know or even fully understand.

Technicalities aside, earning rewards via staking are not defined in the IRS books clearly. Are they taxed as an income or a gift or a capital gain? Questions remain.

DEX applications are another area of concern. De found out “centralized” crypto exchanges (think Kraken, Coinbase, etc) duly publish 1099 forms and send both the IRS and taxpayers information about their transactions.

Chandra Lodha of Cointracker – a crypto-tax platform. Lodha adds “the IRS is cracking down on crypto taxes this year in a way the agency hasn’t in past years.”

Margin trading is another area of opacity. Lodha notes unsophisticated users end up with leveraged positions, and as “crypto derivatives [are] settled in crypto essentially mean the taxpayer is receiving property at the end of the transaction.”

“There’s pretty clear guidance on non-crypto futures like if you’re trading regulated commodity futures, that are [U.S. Commodity Futures Trading Commission] regulated, there’s like a ton of legislation around how that works,” he told De.

The conclusion? Taxes remain a fuzzy topic for cryptocurrencies and it’s best to consult a lawyer (or two) and not turning to the Internet for advice.

Shaurya Malwa

Bitcoin fanatic. Economics Graduate. Hobbies include obsessively brewing coffee and surfing aviation blogs.