Following feedback on its tax form for 2020, the Internal Revenue Services (IRS) has come out to clear the air on its FAQ page.
The IRS had stated in a Dec.11 tax form for US taxpayers if they had at any time in 2020 received, sold, sent, exchanged, or otherwise acquired financial interests in virtual currencies. The ambiguity of the listing had seen many taxpayers calling it a trap.
Tax Form Confuses Taxpayers
Ryan Losi, vice president of the PIASCIK tax firm, had said the tax agency was preparing a trap for taxpayers for the future.
Others like Timothy Peterson, Investment Manager at Cane Island Global Macro, had likened the question to a perjury trap asking if citizens would be held accountable if they refuse to answer.
Now the agency has come out to answer its critics, saying that the question does not apply to those who bought digital currencies with cash. Such lucky citizens are not required to tick the yes or no box that contains this question.
But, the IRS is not exactly saying that crypto investors can hide their gains from the government. According to the FAQ page, crypto owners who at one time or the other exchanged their crypto for another digital asset, short or temporarily liquidated their assets, and received free digital tokens will still need to respond to the question honestly.
Despite the agency’s best efforts, the public is still calling the reporting burden unfair.
Shehan Chandrasekara, head of the tax strategy at CoinTracker, commented on the agency’s ambiguous rule. Saying that crypto acquisition with US dollars was not supposed to be taxed, he said taxpayers are not meant to answer the question.
The IRS rules have been criticized for their opaqueness and threat to the nascent crypto industry. Some experts believe the agency needs to find a way to make dynamic taxation guidance for crypto investors, it may lead to a dearth of innovation in the industry.
Crypto Tax Firms Expanding Outside U.S
In a bid to help crypto investors out with their tax obligations, Utah-based tax compliance firm TaxBit has been working behind the scenes to develop its enterprise solutions for crypto-facing institutions.
In a Series A funding round led by Paradigm and Tiger Global, TaxBit raised over $100 million. Winklevoss Capital, the Winklevoss Twins’ investment arm, and other prominent venture capital firms participated in the funding event.
TaxBit said in an official announcement that the funds would be invested in its enterprise solutions to help crypto exchanges and businesses get optimal results on their tax obligations. It will also invest part of the funds in the United Kingdom, where it is hoping to establish a global presence.
Michael O’Connor said the company’s tailored tax and accounting software is needed in this period, given the hazy regulations concerning cryptocurrency ownership worldwide.