The US Internal Revenue Service (IRS) is under fire over its decision to classify cryptoassets as ‘property’ in its guidance on taxation for virtual currencies
US companies are challenging the IRS definition of cryptoassets, arguing that this creates an additional compliance and reporting burden for tax accounting purposes.
The Wall Street Blockchain Alliance (WSBA), a non-profit trade association, has written to the US tax authority stating that while there may not be a perfect classification for cryptocurrency at the moment, the current classification ‘as property creates additional compliance and reporting requirements that seems to neither add value to the taxpayer nor merchants accepting cryptoassets as payment for goods or services’.
The group is lobbying the IRS to consider ‘establishing a de minimis exemption for both individuals and merchants’ that would establish a minimum transaction value threshold for tax reporting purposes, thus lowering the compliance burden on both smaller individual cryptocurrency users and their accounting professionals.
Kell Canty, CEO of crypto accounting firm Verady, one of the signatories to the letter, said that ‘recent draft legislation proposing exemptions based on amount of potential capital gains may further complicate the already complex accounting and reporting issues around cryptoassets by mandating calculating capital gains on every transaction’.
The letter goes on to provide a number of recommendations covering cryptoasset tax implications, including differentiating cryptoasset tax treatment based on how it is used, and reviewing how fair market value (FMV) and cost basis is determined for cryptoassets.
The group also want the IRS to provide more clarity for cryptoasset reporting and disclosure, and to clarify the tax treatment for airdrops. Airdrops are a distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses.
It is seeking guidance on how to treat stablecoin issuances for tax purposes and if they should be exempted from like-kind exchanges. It argues stablecoins, which are pegged to some ‘stable’ asset in order to minimise price volatility, should be taxed differently and in a manner consistent with the underlying basket of assets.
In addition, WSBA wants more guidance on the implications of treating cryptoassets as intangible assets, the tax implications of taking a stake in a particular blockchain, and clarification on the potential tax implications of ‘transfer of ownership for loan and rehypothecation of assets’ in the case of decentralised finance.
The letter asks the IRS to ‘continue to engage in a proactive and iterative process toward working on new standards, revenue rulings, and additional clarification of existing guidance’.
Canty said: ‘Obviously there is a lot to work through with such a disruptive technology as blockchain. Cryptoassets’ use and adoption will continue to expand and it is vital to have the guidance, compliance and tools to support them.’