It’s been about a decade since the Bitcoin whitepaper saw the light of day. This duration in the history of the blockchain and cryptocurrencies has been akin to the Wild West. However, the Internal Revenue Services (IRS) is stepping into the scene a little more forcefully than before. Despite the buzz, the agency’s inaction in the earlier days may be responsible for the ignorance of many blockchain investors regarding cryptocurrency tax.
In fact, the IRS’s omissions have been so much so that the American Institute of Certified Public Accountants (AICPA) wrote to the body. One of the talking points of the letter was to ask the IRS to offer additional guidance on the taxation of cryptocurrency transactions.
Not Another Voluntary Disclosure Program
However, the mounting push coming from several concerned quarters haven’t convinced the IRS to review its stand. Now, the agency doesn’t seem keen on introducing a separate voluntary disclosure mechanism. Such a program in place would have served the needs of thousands of taxpayers who’ve fallen out of compliance for misrepresenting incomes from cryptocurrency transactions.
Taxpayers now have to devise other methods to bring them back into the compliance fold. The new move by the IRS to scrap plans for supplementary assistance in filing tax returns is devastating news for non-compliant cryptocurrency holders.
The hypothetical cryptocurrency voluntary disclosure program would have assumed the structure of the Offshore Voluntary Disclosure Program (OVDP). Possibly, it would have served taxpayers that are exposed to possible criminal liability or civil penalties. The mentioned liabilities or penalties arise from willful failure to pay tax related to cryptocurrency income.
The Significance of a Non-Existent Program
The devastation felt by non-compliant cryptocurrency-dealing taxpayers is because of the advantages they won’t be able to access. If the IRS had implemented a separate voluntary disclosure program, exposed taxpayers would have gotten protection from liability. Additionally, they’d have had a mechanism for resolving both the tax obligations and or any related penalties.
The Road to Improved Compliance
For the past half a decade since 2013, there has been a realization in the IRS ranks about the increasing level of non-compliance. The most affected individuals are traders dealing in cryptocurrencies. The IRS statistics indicate that a huge number of these traders do not report income from cryptocurrency when they file their tax returns.
The IRS, as such, prepared a guideline regarding taxation of income from cryptocurrency transactions. The guideline came complete with an explanation of how individuals and businesses that transact in cryptocurrencies may end up with numerous taxable events every year. However, the guideline was not effective. According to the IRS data for 2017, only a handful of taxpayers disclosed returns from cryptocurrency transactions.
The scene is set for a transition with the new IRS measures. The federal agency plans to obtain information about thousands of cryptocurrency holders. The IRS may use this info in civil audits and even criminal investigations. Furthermore, the agency hired 250 more agents to help in this regard.
Luckily, tax counsels can always help individuals who find themselves out of the bounds of compliance.