The Internal Revenue Services [IRS] is the latest overwatch body to take a stance on the cryptocurrency market, joining the likes of the CFTC and the Securities and Exchange Commission [SEC] of the United States.
The movement by the governing body comes after months of speculation that started in May of this year when the IRS Commissioner Charles Rettig revealed that the organization was working on statements related to the digital assets industry. In a new report released by the IRS, the Commissioner stated:
“The IRS is committed to helping taxpayers understand their tax obligations in this emerging area. The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.”
The report touched upon important aspects and events in the cryptocurrency industry such as forks. The IRS claimed that any new token created from a fork should be subject to an ordinary income equal to the fair market value of the new cryptocurrency when it is received. The document added:
“If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income.”
The watchdog also stated that it is looking to address potential non-compliance in the cryptocurrency space through multiple efforts including taxpayer education, audits, and criminal investigations.
Some instances of the IRS’s steps include mailing information letters to over 10,000 taxpayers who may have reported transactions involving virtual currency incorrectly or not. The report concluded by saying:
“Taxpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.”
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