IRS lax on bitcoin investment guidance, report says
Thu 12 Jan 2017
A report issued by the United States Government Accountability Office (GAO) has found that the IRS has not provided essential guidance to taxpayers regarding investment in ‘unconventional assets’, including virtual currency.
The GAO, a bipartisan investigative arm of the U.S. Congress, recommends that the IRS improve guidance for citizens saving for retirement using tax-deferred Individual Retirement Accounts (IRAs).
The report shows a concern for the security of retirement savings when totally or partially invested in unconventional assets such as cryptocurrency. Specifically, the GAO has recommended that the IRS clarify in which situations an IRA investment could generate taxable income, the determination of fair market value of unconventional assets, and to clarify the review and approval of those investments by the IRS.
The aim is to ensure that retirement investments are as secure as can be expected, and that investors do not put their savings at risk by unknowingly violating IRS requirements for tax exemption or deferral.
IRS regulations currently state that virtual currency is treated as property, and that the regulations associated with property transactions apply to virtual currency. However, existing guidelines focus more on cryptocurrency as used in transactions, such as in payment of wages, rather than the implications for virtual currency as an investment applied to a tax-sheltered retirement savings program.
The IRS has been embroiled in a fight to gain access to the database of bitcoin users and transactions made through the CoinBase digital currency transaction hub.
In November 2016 the agency served CoinBase with a summons that would require CoinBase to release information on its members. A group of users moved to block the release of information stating that the request was not properly calibrated and as written, it violates their right to privacy.
The difficulty, though, is that the IRS tends to get a wide latitude on privacy from the courts when seeking information in pursuit of recovering unpaid taxes. For example, a similar ‘John Doe’ summons was granted to the IRS to access confidential information from UBS, resulting in the collection of over $10 billion in taxes associated with Swiss bank accounts held with the company.
The CoinBase case is scheduled to be heard in court on January 19, 2017.