Here’s what the IRS should know – Bitcoin is not just money
The cryptocurrency industry has been developing at quite a fast pace and this has helped change the outlook of investors and governments around the world about crypto. Although it will be naive to say that the world has accepted crypto, many nations have been inching closer to embrace it, one step at a time. The United States has been one such country to allow technological advancement, yet has been pondering over the kind of regulations to be levied to keep crypto in check.
Among the agencies, looking strictly to maintain taxation in the country, was the Internal Revenu Service [IRS]. The IRS had been at the top of its game and recently released a Form 1040, U.S. Individual Income Tax Return. There were various changes made to the form proposed for the tax year 2020.
The IRS introduced a new cryptocurrency compliance measure for taxpayers last year in the form of a checkbox above Schedule 1, Additional Income and Adjustments to Income. This was called out as a problem as taxpayers who did not need to file for Schedule 1 and often missed out on this question regarding cryptocurrencies. However, in the latest draft form, this question has been moved up.
However, this one question has raised the eyebrows of many crypto enthusiasts in the space and Justin Winston was one of them. A first amendment attorney by his declaration, Winston believes that the IRS’s requirement that people should declare all crypto “received, sold, sent, exchanged, or otherwise acquired” should be challenged. Calling it “way too broad”, Winston noted that the government should not know whether the individual “purchased, received, or acquired crypto because crypto is not just money.”
While the crypto-verse has been trying to establish the use case of crypto beyond money, especially that of Bitcoin, the mainstream has been stuck with the idea of crypto being just a replacement for physical cash. Bitcoins and other cryptos allowed for other uses, for example, Microsoft has been using Bitcoin’s blockchain for ID management. Similarly, an individual needed to hold BTC or other cryptos to utilize blockchains. Winston added:
“IRS asking US residents to declare all crypto is as inappropriate as asking citizens to declare all email addresses, social media handles, or data plans.”
Even though the latest form did not ask the taxpayers to declare their crypto holdings yet, it asked them to declare if they received or sold crypto within the past year, which was also considered “beyond the purview of information” for the agency to do its job.
Earlier in the month, four US congressmen in a letter addressed to the IRD commissioner Charles Rettig expressed concerns about its taxation policy. The four congressmen namely, Bill Foster [D] of Illinois, Darren Soto [D] of Florida, Tom Emmer [R] of Minnesota, and David Schweikert [R] of Arizona noted that the taxation of staking rewards as income may overstate taxpayers’ actual gains from participating in crypto, which is looked upon as new technology. This concern was along the lines of Winston’s concern. The space needed people who focused on the expressive and associational aspects of the decentralized networks and not just instinctively tax anything that came out of crypto, as it could stifle the growth of this nascent technology.
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Namrata Shukla, Khareem Sudlow