Chamber member firm Sovos recently teamed up with the tax experts at CryptoTrader.Tax to highlight and analyze the challenges cryptocurrency exchanges face when attempting tax information reporting. This comprehensive whitepaper discusses the rapidly evolving IRS guidance on crypto tax reporting as well as the evolution of the 1099-B and what it means for both exchanges and traders.
Key Takeaways Include:
- To accurately report gains and losses for tax purposes, individuals are required to complete IRS Form 8949. This form requires an accurate accounting of cost basis. Since this information is not provided by most cryptocurrency exchanges, this means that the responsibility of reporting cost basis across transactions falls solely on the crypto investor.
- Cryptocurrencies like Bitcoin are built to enable easy transfer, which makes capital gains and losses reporting on behalf of users difficult for exchanges to do. 1099-B reporting – the federal tax form used by brokerages and barter exchanges to record customers’ gains and losses is extremely difficult for cryptocurrency exchanges to provide as most do not have the data (including cost basis) to provide a complete 1099-B.
- While no specific regulation has been mandated by the IRS yet, the last six months of enforcement activity signal that something is forthcoming. It’s highly likely that the IRS is considering imposing 1099 reporting requirements for cryptocurrency exchanges.
- Due to the cost basis challenges that exchanges face, the IRS should consider an approach of implementing a gross proceeds 1099 reporting requirement first and phasing in cost-basis requirements as the ecosystem matures.
BE PART OF A UNIFIED VOICE FOR THE BLOCKCHAIN TECHNOLOGY ECOSYSTEM
BE PART OF THE UNIFIED VOICE FOR THE BLOCKCHAIN TECHNOLOGY ECOSYSTEM