Information reporting guidance is critical to enabling taxpayers to comply with their tax obligations, and we support the Treasury Department in finally considering this much needed guidance. For too long the cryptocurrency industry has been cast as failing its tax compliance obligations. However, a lack of guidance has hindered tax professionals and taxpayers from meeting those expectations. In its American Families Plan Tax Compliance Agenda published today, the Treasury Department proposes coverage of foreign financial institutions and cryptoasset exchanges and custodians in its plan to close the tax gap by increasing information reporting. This is welcome news.
Last year, the Chamber of Digital Commerce urged the Treasury Department and the IRS to release much needed information reporting guidance to support just this. Last week, we proactively identified for the IRS and Treasury a Tax Policy Framework where clarity and guidance must be provided this year for cryptoasset transactions, including information reporting. Anticipating that the IRS is considering the application of the Foreign Account Tax Compliance Act (FATCA) to cryptoassets held offshore, we also provided detailed input to ensure better outcomes for the industry. We look forward to working with the IRS and Treasury on their proposals in an advanced notice of proposed rulemaking – which would enable time for industry input before finalizing a rule in this complex space.
We are concerned, however, with how cryptocurrency is characterized in the Compliance Agenda. The Treasury Department asserts cryptocurrency possesses a “significant detection problem by facilitating illegal activity broadly including tax evasion” and cites to a report from 2013 – a year before the IRS released taxpayer guidance for cryptocurrency – to support its claim. Not only does this negative characterization harm the reputation of an industry that supports compliance efforts and law enforcement objectives, but it relies on outdated information from almost a decade ago to back up its statement. As we said in our Framework, “published tax guidance relating to digital asset transactions has not kept pace” with the significant growth of these markets. “This disparity creates risk for taxpayers seeking to comply, wastes IRS audit resources, dampens commercial activity and economic recovery, and stifles U.S. innovation,” noting that the IRS has not released meaningful guidance since Notice 2014-21, published seven years ago. The GAO also noted that the IRS suffers from a significant lack of data to support an understanding of the extent of any underreporting, and information reporting is designed to do just that.
The Chamber has maintained a proactive focus on cryptoasset-related tax policy issues and welcomes the opportunity to serve as a continued resource for the Treasury and IRS.