“COMPLICATED, TO SAY THE LEAST”
by Guillermo Jimenez, Tax Revolution Institute, ©2016
(Nov. 16, 2016) — It’s been the “Wild West” for the users of virtual currencies like bitcoin for years, and the times they are … well, not changing very much at all.
This is especially true when it comes to compliance with the federal tax code. Regulators and federal authorities have been slow to keep up with bitcoin, and the Internal Revenue Service is no exception.
Widespread Non-reporting
According to the Treasury Inspector General for Tax Administration (TIGTA), virtual currency use continues to climb and the IRS is not doing nearly enough to police these transactions.
A recent review by the watchdog found several deficiencies in the way the IRS currently addresses virtual currencies, specifically bitcoin, which TIGTA identifies as comprising “nearly 82 percent of the entire virtual currency market.”
The report notes that the agency’s failure to provide proper guidance and investigate noncompliance has led to an increase in the “tax gap” — the estimated difference between “the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time.”
According to the IRS, the tax gap for tax years 2008 through 2010 was approximately $458 billion per year.
While the IRS issued a notice in March 2014 and launched the Virtual Currency Guidance Team, TIGTA says the agency has made little to no effort to follow up:
“… [T]here has been little evidence of coordinate between the responsible functions to identify and address, on a program level, potential taxpayer noncompliance issues for transactions involving virtual currencies.”
At present, the inspector general says the IRS still lacks an “overall strategy” to deal with bitcoin. What’s more, TIGTA points out that the Government Accountability Office raised these concerns three years ago, and yet the IRS’s position on virtual currency “has remained relatively unchanged.”
Indeed, the IRS has remained strangely quiet on the issue over the years, leaving only the March 2014 announcement (Notice 2014-21, “Virtual Currency Guidance”) as their official word on the matter.
That notice, however, did little to help those bitcoin users who want to “come out of the shadows” and comply with federal tax laws, as Bob Derber — an attorney with the Summit Legal Group and contributor to Coin Center — explained to the Tax Revolution Institute’s Fergus Hodgson in early August.
The crux of the issue lies with the IRS’s refusal to classify bitcoin and the like as actual currency, just like the legal tender that is issued from a central bank. Instead, the agency has insisted on treating bitcoin as “property,” which makes reporting requirements complicated, to say the least.
Read the rest here.
The constitution says that “congress shall print coin and establish the value thereof”. Bitcoin is an illegal operation much like the IRS and the federal reserve under the worthless oversight of an incompetent congress.