As part of the Wall Street Blockchain Alliance (WSBA), Verady contributes regularly to working papers, education, and other items on important issues around Cryptoassets and their evolving accounting and tax ecosystem in the United States. Recently, the WSBA asked Accounting Working Group members to collaborate in the creation of a response letter to the Internal Revenue Service regarding their Revenue Ruling 2019-24 as well as the subsequent FAQ’s providing guidance on the taxation of virtual currencies. The letter was designed to offer insight and recommendations, from experts in the cryptocurrency accounting industry, on “some of the most prominent outstanding questions or items for which [WSBA members] are seeking further clarification.”
The WSBA is a non-profit trade association based in New York City and the Accounting Working Group consists of leading companies with diverse backgrounds in the areas of accounting and cryptoasset tax, including Verady (represented by our CEO Kell Canty).
The response letter (which can be read in its entirety at https://www.wsba.co/uploads/3/7/9/4/3794101/wsba_irs_response_letter_-_final.pdf) touches on a variety of issues, but leads with thoughts on perhaps the biggest disappointment in the crypto community since the IRS last released guidance… the classification of cryptocurrency as “property.” And while the WSBA letter notes that 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.”
Instead, the letter asks 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.
In further analysis Canty noted, “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 the following recommendations for other important cryptoasset tax implications, including:
- Differentiating cryptoasset tax treatment based on how the it is used
- Taxing stablecoins differently and in a manner consistent with the underlying basket of assets
- Reviewing how Fair Market Value (FMV) and Cost Basis is determined for cryptoassets.
- Providing more clarity for crypoasset reporting and disclosure
- Clarifying the tax treatment for Airdrops
- Guidance on how to treat stablecoin issuances for tax purposes and if they should be exempted from like-kind exchanges
- Insights on the implications of treating cryptoassets as intangible asset
- Cryptoasset Tax implications of Staking
- Clarifying the potential tax implications of “transfer of ownership for loan and rehypothecation of assets” in the case of Decentralized Finance (De-Fi)
- And asking 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.”
“Obviously there is a lot to work through with such a disruptive technology as blockchain. We look forward to continuing the conversation with the IRS to bring clarity and support for guidance around cryptoasset tax. Cryptoassets’ use and adoption will continue to expand and it is vital to have the guidance, compliance, and tools to support them.”
To learn more about the Wall Street Blockchain Alliance, be sure to check out their website at https://www.wsba.co/membership.html.