Hello,

We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not a subscriber? Subscribe now for unlimited access to online articles.

Business Impact

How the hell are cryptocurrency holders supposed to file their taxes?

Though it wasn’t in time for tax day, US lawmakers are pressuring the IRS to clarify its policies for digital currencies.

America's cryptocurrency tax policy is confusing everyone—and it’s high time for the US Internal Revenue Service to sort it out and explain. That’s the gist of a strongly worded letter sent by a bipartisan group of 21 members of the House of Representatives to the IRS on April 11.

The legislators, led by Tom Emmer from Minnesota, join a growing chorus of policy advocates calling on the IRS to update the guidance it published in 2014. There remains “substantial ambiguity on a number of important questions about the federal taxation of virtual currencies,” they write. Emmer and his colleagues say there’s an “urgent need” for additional guidance.

At the top of the priority list are open questions around the concept of capital gains, which are profits an investor realizes when selling an investment. The guidance the IRS published five years ago stated that “virtual currency” would be treated as property for federal tax purposes. Buying and holding it is not a taxable event. But if you use your crypto to buy anything—even something like a cup of coffee—you have to make sure you keep track of the difference between the value of the cryptocurrency when you first bought it and when you spent it. If it increased in value, that counts as a capital gain, and you have to pay taxes on it.

Sign up for the Chain Letter
Blockchains, cryptocurrencies, and why they matter.

But the IRS hasn’t specified exactly how people should determine their cryptocurrency’s value while calculating capital gains. That's problematic, since many digital currencies are listed on multiple exchanges, and prices are not uniform. Emmer and colleagues have asked the IRS to be much more specific.

The lawmakers also raise the issue of hard forks, which occur when a blockchain network decides to split into two, each with its own coin. This may happen if the community around the network becomes irreconcilably divided—for instance, over proposed technical changes. This is why Bitcoin Cash formed, as a fork of Bitcoin, in 2017.

Last year, Bitcoin Cash itself split in two. When a chain splits, holders of the original coin are entitled to the same value of the new coin. Is that income? How exactly is it taxed? The IRS has yet to issue any guidance here.

Though there are “many other open questions,” Emmer and his coauthors say the confusion about crypto capital gains and hard forks is a particularly urgent problem. The letter requests a written response describing the IRS’s plans to provide additional guidance on these issues by May 15. That won’t have helped people scrambling to meet yesterday’s filing deadline, but maybe next year tax season won’t be so much of a headache for crypto users.

Keep up with the latest in blockchain at Business of Blockchain 2019.

May 2, 2019
Cambridge, MA

Register now
More from Business Impact

How technology advances are changing the economy and providing new opportunities in many industries.

Want more award-winning journalism? Subscribe to MIT Technology Review.
  • Print + All Access Digital {! insider.prices.print_digital !}* Best Value

    {! insider.display.menuOptionsLabel !}

    The best of MIT Technology Review in print and online, plus unlimited access to our online archive, an ad-free web experience, discounts to MIT Technology Review events, and The Download delivered to your email in-box each weekday.

    See details+

    12-month subscription

    Unlimited access to all our daily online news and feature stories

    6 bi-monthly issues of print + digital magazine

    10% discount to MIT Technology Review events

    Access to entire PDF magazine archive dating back to 1899

    Ad-free website experience

    The Download: newsletter delivery each weekday to your inbox

    The MIT Technology Review App

  • All Access Digital {! insider.prices.digital !}*

    {! insider.display.menuOptionsLabel !}

    The digital magazine, plus unlimited site access, our online archive, and The Download delivered to your email in-box each weekday.

    See details+

    12-month subscription

    Unlimited access to all our daily online news and feature stories

    Digital magazine (6 bi-monthly issues)

    Access to entire PDF magazine archive dating back to 1899

    The Download: newsletter delivery each weekday to your inbox

  • Print Subscription {! insider.prices.print_only !}*

    {! insider.display.menuOptionsLabel !}

    Six print issues per year plus The Download delivered to your email in-box each weekday.

    See details+

    12-month subscription

    Print magazine (6 bi-monthly issues)

    The Download: newsletter delivery each weekday to your inbox

/3
You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.