IRS Crypto Summit Was About the Exchange of Ideas, Not Tax Guidance
WASHINGTON — “We might be overcomplicating things,” an audience member at the Internal Revenue Service’s crypto summit said midway through the first panel.
The IRS hosted four panels Tuesday, discussing technology, exchanges, the tax filing process and regulatory guidance in a daylong session uniting industry stakeholders, tax experts and regulators. The goal: Sort out some of the questions and concerns the broader crypto-holding public has about reporting its taxes.
While there were no answers and no new guidance for the industry (though virtual currency did make it to the IRS’s priority guidance plan published Friday), the event still represents a step forward for the opaque regulatory agency, which in a decade has only produced two pieces of binding guidance and published some non-binding documents for taxpayers and financial advisors.
“There’s a clear desire from both industry and regulators to understand this,” Chandan Lodha of CoinTracker told CoinDesk.
Financial advisers want to ensure they don’t have their clients fulfill costly reporting requirements only to discover they didn’t need to, EY partner Michael Meisler said during a panel. At another point a Coinbase vice president asked for clarity about reporting forms.
On the IRS side, numerous agency employees filled the auditorium with questions of their own, asking for clarity on how blockchain forensics works on a technical level, how privacy coins differ from cryptocurrencies like bitcoin (BTC) and even just what specifically they could do to simplify the process for taxpayers.
There is some frustration on the industry side at the lack of existing guidance, and the event did not indicate that any new guidance will be forthcoming. Still, Lodha said the event was a positive step.
Unlike traditional panels, where a moderator asks panelists questions, the IRS event seemed geared from the outset to let audience members and even panelists ask IRS officials to clarify existing tax guidance and address lingering questions.
Specific questions included the best ways to calculate cost basis, how to treat coins bought from different exchanges or transferred between exchanges, whether microtransactions can be exempted and how to marry what tax code says with non-binding guidance published by the IRS so far.
“It would certainly be more helpful … if there was published guidance rather than just these frequently-asked-questions because in the absence of that, what we have is, ‘Well, this isn’t really authority,’” said EY’s Meisler, during a panel on tax return preparation.
It was a common refrain.
Audience members and panelists alike – including Kraken Head of Global Tax Lisa Askenazy Felix, Coinbase tax VP Kyle Zander and American Institute of Certified Public Accountants (AICPA) senior manager Amy Yiqiong Wang – said a lot of confusion stems from the fact that a lot of cryptocurrencies still don’t fall neatly into any existing tax laws.
“The rules don’t exist today to tell you exactly [how] to [file taxes],” Askenazy Felix said during a panel on exchanges.
EY’s Meisler told CoinDesk after the event that he believed it went well, noting IRS Assistant Deputy Commissioner John Cardone opened his panel by telling audience members the tax collector was looking for specific issues of interest to the industry.
“The people that were there from industry were asking questions that were very targeted, whether they develop software that conducts tax calculations or they were from exchanges, they were asking specific questions,” Meisler said.
One key detail that remains unclear is how exactly taxpayers can calculate the value of their digital assets.
The IRS has indicated in its frequently asked questions that individuals who buy and sell crypto at different times can use a method like “first-in-first-out,” meaning if you buy bitcoin in January, March and April and sell in July, August and September, you would calculate the difference in price between the first bitcoin you bought in January and the first bitcoin you sold in July.
However, this may not actually be allowable.
AICPA’s Wang said during a panel the tax code says users “should use specific identity,” meaning the cost should be calculated on the actual specific bitcoin being transacted.
“So there is no binding authority at the moment that allows you to use anything other than specific identification,” she said. “It’s really important for practitioners that the IRS comes out with clarity and guidance saying you can use other forms of tracking basis.”
While there were specific questions, various IRS officials also asked what the crypto industry might see as more basic questions – including “what is an API,” what regulatory arbitrage is and how cryptocurrencies are transacted.
“I'm getting the sense there's a wide array of sophistication in the room,” said Coinsource’s Arnold Spencer during a panel on technology updates.
Meisler told CoinDesk that having individuals who appeared to have different levels of understanding about the crypto space and technology is not surprising, and having everyone in a room together was likely a good thing.
“Before someone can answer ‘How do we tax cryptocurrency?’ or ‘How do we tax a hard fork or an airdrop?’ it’s helpful to understand what the mechanics of those transactions are,” he said.
It’s unclear whether the IRS will be able to publish anything actionable in the near future. However, there are some steps it can take immediately to clarify its existing guidance. Wang told CoinDesk that just moving its list of FAQs into the Internal Review Bulletin would provide some clarity, a view Meisler echoed.
Because the FAQs are not published in the bulletin, they’re not binding guidance; the IRS can change any recommendations on it as it wishes, which the agency has actually been doing, Wang said.
Some of the questions on the FAQ now appear at different points than when first published.
Turning these questions into binding guidance would give financial advisors and taxpayers the comfort of knowing they were looking at proper legal guidance, which could prevent them from inadvertently violating the tax code.