In the recent past, the U.S. Internal Revenue Service (IRS) has ramped up its efforts to ensure that cryptocurrency users pay related taxes on their holdings.
A few weeks ago, the tax agency sent out a new round of tax letters, consisting of Letters 6173, 6174, and 6174-A. These letters are similar to those sent to about 10,000 crypto owners suspected of flaunting crypto taxation guidelines in 2019.
The IRS also recently moved the cryptocurrency question to the top of the latest draft Form 1040, which is the primary document used by US citizens to file their taxes.
The question inquires whether the individual received, sold, sent, exchanged, or otherwise acquired any financial interest in any crypto assets, such as BTC and XRP.
This seemingly tightening overwatch on crypto and the agency’s growing desire to tax every last crypto asset has been uninspiring for many. One Reddit user commented:
“I don’t need to calculate capital gains / income tax with cash or credit when I make a purchase. I’d have to worry about that with crypto.”
IRS Crypto Crackdown Threatens To Slow Down Adoption
The IRS is getting very serious about cryptocurrency tax compliance, and their actions threaten to stifle the adoption of digital currencies.
The watchdog threatens non-compliant crypto owners with future civil and criminal enforcement activities if they fail to accurately report their crypto holdings and transactions.
Cointracker co-founder Chandan Lodha presumes that the IRS could be getting lists of crypto holders from Coinbase subpoena data. He came to this conclusion from the fact that most folks that got tax compliance warning letters are regular users of the exchange.
Lodha added that the IRS had subpoenaed other non-US-based exchanges such as Bitstamp, and also uses blockchain analytics software to track crypto users’ transaction history.
As recently reported, the IRS has even gone so as far as to try penetrating the untraceable privacy coin Monero and also track down transactions on the Lightning Network.
Such scrutiny and compliance threats could be viewed as an encroachment on users’ privacy, thus deterring many individuals from transacting in crypto.
The latest blow to crypto users was the tax authority’s confirmation that cryptocurrencies earned from microtasks via crowdsourcing platforms count as taxable income.
Some Crypto Tax Regulations Are “Not Ideal”
There has been a constant push for regulatory clarity in the US House of Congress for a while now. In the past year alone, regulators tabled a total of 32 bills to try and develop rules for regulating crypto assets.
In a July interview with Coindesk, an unnamed IRS official admitted that some of the guidance published by the IRS to date “is not ideal” and could use more clarification.
The tax agency is reportedly working to keep up with the nascent crypto industry and formulate more precise rules for the regular taxpayer to follow.
Until they do so, the lack of clear IRS-issued crypto tax guidelines could prove to be the most significant barrier to mainstream adoption.