Cryptocurrency Taxes: IRS Responds to Pressure from Congress

Wendy Walker
May 21, 2019

This blog was last updated on May 21, 2019

After four separate letters from members of Congress urging the agency to release clarification on cryptocurrency taxes, IRS Commissioner Charles Rettig finally responded to Representative Tom Emmer, R-Minn., on May 16, with confirmation that clarification is forthcoming. While Rettig’s letter did provide some specifics on what the guidance would cover, it did not include a timeframe for further information.   

The IRS has felt pressure from several stakeholders to clarify crypto regulations. Crypto traders, tax practitioners and tax professionals have been clamoring for feedback since the IRS released Notice 2014-21, still the agency’s only formal guidance on crypto taxation, more than five years ago. That Notice was notoriously incomplete, as it did not address specific transactions such as forks and left a lot of questions unanswered about what income to report and how.  

Confusion over 1099 reporting for crypto

The lack of guidance has caused confusion for both crypto trading platforms and investors. US payers of income are required to impose tax withholding and information reporting on Form 1099 for income paid to recipients. Failure to do so results in unlimited liability for taxes that should have been withheld plus penalties for failure to comply with withholding and information reporting requirements. Notice 2014-21 alluded to potential obligations for a Form 1099-B, 1099-MISC and even Form 1099-K, but none of the instructions or publications related to those forms was ever updated with any details to guide taxpayers beyond the Notice.

A lack of clarity as to how crypto transactions should be treated for income tax purposes, coupled with confusion about how US payers should report those transactions, has led to significant underreporting of income to the IRS estimated to total billions of dollars.

Specifics on what guidance will include

In his letter to Rep. Emmer, Commissioner Rettig reiterated that Notice 2014-21 guided filers towards existing property rules when virtual currency is used as a medium for exchange or for investment, and that the IRS has been evaluating numerous comments and collaborating with the industry in order to identify areas where additional guidance was needed. Specifically, the Commissioner indicated that guidance would include “(1) acceptable methods for calculating cost basis; (2) acceptable methods of cost basis assignment; and (3) tax treatment of forks.”  

With the IRS finally making a move toward taking concrete action on crypto taxation, payers need to make sure they are in compliance and are able to manage forthcoming regulatory changes as the IRS releases them. Cost basis reporting is complex and requires a modern tax solution to tackle high-volume transactions and complicated calculations.

Take Action

Find out how Sovos solutions have helped crypto exchanges comply with Notice 2014-21 as well as how Sovos can enable organizations to comply with the coming changes to IRS requirements.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Wendy Walker

Wendy Walker is the Vice President of Regulatory Affairs at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
Share this post

North America Unclaimed Property
February 10, 2025
Delaware Announces 2025 VDA Invitation Dates

This blog was last updated on February 10, 2025 Mark your calendars – April 11, 2025 and August 15, 2025 are this year’s anticipated release dates for the Delaware’s Secretary of State (SOS) VDA program invitations. In the event that an organization receives an invitation to participate in the Voluntary Disclosure Agreement (VDA) program  , […]

North America Sales & Use Tax
February 6, 2025
The Tariff and Sales Tax Mishmash – Untying the Mess

This blog was last updated on February 6, 2025 Talk of tariffs dominates the current news cycle with some commentators suggesting that tariffs will spell disaster for our economy while others say the exact opposite. We’ve seen the stock market sometimes fluctuate as tariffs are announced but later suspended, leaving us to wonder whether an […]

retailer dtc wine shipping
North America ShipCompliant
February 6, 2025
Retailer DtC Wine Shipping: The Time Has Come

This blog was last updated on February 6, 2025 By Tom Wark, Executive Director, National Association of Wine Retailers We are often reminded by the media and those in the wine industry—as well as by wine enthusiasts—that the three-tier system of alcohol distribution in most states hinders consumer access to the expansive number of wines […]

Montana 1099-DA
North America Tax Information Reporting
February 5, 2025
State Filing Alert: Montana’s New 1099-DA Requirements for Crypto Brokers

This blog was last updated on February 5, 2025 Reporting digital asset transactions on Form 1099-DA just got a little more complicated. For 2025 transactions, crypto brokers that file Form 1099-DA with the IRS will be required to file the 1099-DA with the State of Montana. This makes Montana the first state to introduce a […]

North America ShipCompliant
January 23, 2025
DtC Wine Shipping in 2024: A Year-in-Review

This blog was last updated on January 28, 2025 The direct-to-consumer (DtC) wine shipping channel faced a storm of challenges in 2024, navigating some of the toughest market conditions in over a decade. As inflation tightened wallets and consumer behaviors shifted, the industry recorded its steepest declines in shipment volume and value since the inception […]