In the News

U.S. House Members: IRS Crypto Tax Guidance Raises ‘New Questions’

12/22/2019
DCE Brief

Eight members of the U.S. Congress have asked the Internal Revenue Service (IRS) to provide additional information about the agency’s cryptocurrency tax guidelines. In a December 20 letter to IRS Commissioner Charles Rettig, the representatives asserted that the guidelines released by the agency in October “creates many new questions related to the topics it seeks to address.”

The members had previously requested more clarity on cryptocurrency tax back in April 2019 and noted that the IRS’ recent guidelines did address many of the questions from that earlier letter. However, the new letter notes that those guidelines provide insufficient clarity on matters like cryptocurrency forks and airdrops. And it criticized the agency for not providing that guidance earlier, and suggested that the agency’s hypotheticals are unrealistic:

“Moreover, the guidance appears inequitable as it comes almost two years after the Bitcoin and Bitcoin Cash fork and three years after the Ethereum fork.

The hypothetical fact patterns concerning forks and airdrops offered in this guidance do not appear to bear a close resemblance to actual forks or airdrops as they have occurred in the cryptocurrency ecosystem. Without clear and accurate hypotheticals for taxpayers to measure against, it is difficult to interpret IRS policy as it relates to actual events.”

The representatives also raised questions about the agency’s apparent adoption of a “dominion and control” standard for determining taxable events for airdropped and forked digital assets. As the letter notes,

“The guidance appears to suggest that taxpayers may have dominion and control, and thus be taxed on forked or airdropped assets when the fork or airdrop occurs, even if the taxpayer has no knowledge, and even if the taxpayer takes no affirmative step, or manifests any intention to claim or access those forked or airdropped tokens.”

According to the letter’s signers, that standard would create the potential for “unwarranted tax liability and administrative burdens” and lead to unfair results. The representatives stressed that they “do not expect this to be the intended effect of the guidance” and called for the IRS to provide greater clarity on the issue.

In addition to those concerns, the letter also urged the agency to provide additional clarity about how different cryptocurrency products might be taxed, as well as guidance on withholding and tax reporting. The representatives also took issue with the tax agency’s assertion that its latest guidance seems to assert that it is “established” law:

We would hope that the IRS recognizes this area as new and developing and will allow for reasonable interpretations in advance of the issuance of the most recent guidance. While we commend the IRS for attempting to issue guidance, we suggest increased work with the industry in the future.”

The representatives asked the agency to provide details about whether it intends to provide more realistic airdrop and fork hypotheticals and clarify its dominion and control standard. They also asked the agency to confirm whether it plans to seek retroactive application of its recent guidelines or issue new guidance subject to notice and comment standards.

The letter concluded by stressing the urgent need for clarification, since the present ambiguity is unfair to taxpayers who have not previously been provided adequate guidance to help them comply with tax laws:

“Lastly, until there is clear guidance that is prospective in nature, we urge the IRS to use its authority for penalty relief in those instances in which taxpayers made a good faith effort to comply.”

The letter was signed by Representatives Tom Emmer, Bill Foster, David Schweikert, Darren Soto, Lance Gooden, French Hill, Matt Gaetz, and Warren Davidson. The full text of the letter is available here.