The Government Accountability Office (GAO), a U.S. Congress watchdog, published a report evaluating the IRS’s approach to regulating virtual currency (crypto) and the guidance it has offered the public.
In the report, the GAO offered three recommendations for the IRS, and an additional recommendation for the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department.
A lack of clarity
One of the three recommendations addressed the IRS’s lack of clarity on information reporting for crypto, also known as third party reporting requirements.
Today, some crypto exchanges report crypto earnings using forms like Form 1099-K, 1099-B and 1099-MISC. And some exchanges choose not to report anything. This is because the IRS has not clearly communicated the requirements for cryptocurrency information reporting. So, exchanges are interpreting these requirements as they see fit. According to the GAO report, this is likely leading to underreporting.
The GAO’s recommendation
To address this issue, the GAO recommends that the IRS provide more detailed guidance on how exchanges should report tax information for crypto. This is because more information leads to higher compliance. If you receive a W-2, you are more likely to report that on your taxes. The same is true for crypto.
The IRS agrees with this recommendation. According to the GAO, the IRS started a program that clarifies information reporting requirements for crypto and is working on ensuring that exchanges file the right forms.
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