Crypto Execs Tell Congress to Fix Tax Rules
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The old saying about Death and Taxes is not quite accurate when it comes to cryptocurrencies. The Internal Revenue Service may seem as implacable as the specter of mortality, but at least the Grim Reaper is upfront about the price.
Crypto tax laws, on the other hand, remain so nebulous and enigmatic that they might have been written by Franz Kafka. No one’s quite certain how to pay crypto taxes, or on which transactions—only that they must be paid.
This is the subject of “Legislating Certainty for Cryptocurrencies,” a Congressional roundtable hosted today by Warren Davidson (R-OH) on the subject of regulating digital currencies and tokens.
Invited participants include executives from crypto companies and regular exchanges such as Nasdaq, Intercontinental Exchanges, Ripple and Kraken, to discuss topics like improving securities regulations, protecting investors and consumers, and clarifying the rules for the still-emerging field of crypto-finance.
“Your input is critical to helping us preempt a heavy-handed regulatory approach that could stall innovation and kill the U.S. ICO market,” Rep. Davidson wrote in a letter to invitees. CNBC reports that input from the roundtable will be used to draft a House Bill on cryptocurrencies this fall.
“If we want to get ahead of the curve as a nation and be a crypto-friendly economy, we have to make it a friendly place to set up an ICO,” says Michael Minihan, a tax attorney and partner at BX3 Capital, who participated in the roundtable at Rep. Davidson’s invitation.
As it stands right now, it’s not clear whether a fundraise is a taxable event or not.
This is in stark contrast to the favorable incentives and tax cuts by which Congress encourages other nascent industries like renewable energy, he observed.
In an exclusive interview with Crypto Briefing, Mr. Minihan elaborated a set of proposals for commonsense crypto regulations, such as exempting “like-kind” trades from capital gains taxes, and treating token sales under similar provisions to those regulating equity or debt offerings.
“If we want people to raise the better projects to the top, so people are backing legitimate projects,” Mr. Minihan said, “the best way to do that is to not penalize people for moving [funds] between currencies.”
Crypto Bills Already In The Pipes
Regulatory bureaucrats have been slow to react to the crypto phenomenon. The IRS has not issued crypto guidance since 2014, and SEC Chairman Jay Clayton has publicly stated that there is no need to amend securities laws for ICOs.
Rep. Davidson’s proposed crypto reform is likely to be joined by at least three other blockchain bills, introduced by Rep. Emmer (R-MN), co-chair of the Congressional Blockchain Caucus. In a press release, Mr. Emmer’s office stated that the proposed legislation
expresses support for the industry and development of these promising technologies in the United States, provides clarity to entities that never take control of consumer funds, and establishes a safe harbor for taxpayers with “forked” digital assets.
Render Unto Caesar….But What Does Caesar Want?
But it doesn’t take a Congressional Roundtable to know that tax regulations are stacked against cryptocurrency traders and investors. Because digital assets are currently regarded as “property,” all crypto-to-crypto trades are taxable events—a nightmare for prospective investors seeking to put their money into token platforms like EOS or Komodo.
Streamlining the revenue code has been a growing priority for lawmakers, especially as initial coin offerings boomed over the past year. Last week Kevin Brady, Chairman of the Ways and Means Committee, “strongly urge[d]” the IRS to issue more reasonable guideline.
“On May 17, 2017, we wrote to the IRS to raise questions about the enforcement actions being taken against those holding virtual currencies and the lack of a comprehensive virtual currency strategy,” Mr. Brady wrote, along with four other Republican lawmakers:
More than a year after our initial letter, the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers. We therefore write again today to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.
As the authors of the letter point out, crypto tax regulations have been unclear since 2014, when the IRS issued “preliminary guidance” in the form of a six-page FAQ.
Since then, further guidance has not been forthcoming, but that hasn’t stopped the bureaucracy from invoking its John Doe Summons authority to acquire the records of half a million cryptocurrency-hodling Americans. Early this year, the Large Business and International division announced a major compliance campaign respecting virtual currencies.
The lawmakers strongly reproved the agency’s actions, writing:
A key component of the IRS’s duties as the nation’s tax administrator is to assist taxpayers in understanding what their tax obligations are…A failure to put forth adequate guidance severely hinders taxpayers’ ability to do so.
It remains to be seen if the Congressional letter or roundtable will result in greater regulatory certainty or more comprehensive guidance. But one thing seems likely, based on the bureaucracy’s prior history with nascent technology and regulatory reform: the response, if any, will subdued, limited, and most likely overdue.
That’s about as certain as Death and Taxes.
The author has investments in several digital currencies.