In October the IRS released long overdue answers to pressing questions about how Americans can properly calculate their taxes owed for various cryptocurrency activities. Unfortunately, that guidance is muddled, raises more questions than it answers, and seems to be based on a poor understanding of how cryptocurrency networks work.
Now Congress has taken notice of this problem. A new letter signed by eight members of Congress succinctly lays out the problem:
The guidance appears to suggest that taxpayers may have dominion and control, and thus be taxed on forked or airdropped assets when the fork or airdrop occurs, even if the taxpayer has no knowledge, and even if the taxpayer takes no affirmative step, or manifests any intention to claim or access those forked or airdropped tokens. This creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies and would create inequitable results. We do not expect this is the intended effect of the guidance, and we urge the IRS to clarify the matter.
And asks the agency what it will do about this:
- Does the IRS intend to clarify its airdrop and fork hypotheticals to better match the actual nature of these events within the cryptocurrency ecosystem? When does the IRS anticipate issuing that clarification?
- Does the IRS intend to clarify its standard for finding dominion and control over forked assets wherein some level of knowledge and actual affirmative steps taken are necessary to find that the taxpayer has dominion and control?
- Does the IRS intend to apply the current guidance or any future guidance retroactively, or will the IRS issue proposed guidance that is subject to notice and comment?
Coin Center worked with Rep. Tom Emmer to develop this letter and we are grateful for his and his colleagues leadership on this topic. We also worked with him to develop legislation that would offer a safe harbor from tax penalties for taxpayers who have made good faith efforts to comply over the years, despite the lack of clarity. Since the recent disappointing guidance was released, Coin Center has been working to educate more policymakers on this issue, and it seems as though our efforts may be bearing fruit. Getting cryptocurrency tax policy right is a top priority for us and we are pleased to see Congress stepping in on this critical issue for its users.