AICPA Asks IRS for More Tax Guidance on Virtual Currency Transactions

The American Institute of CPAs has sent a letter to the Internal Revenue Service requesting additional guidance about how existing tax principles apply to virtual currency transactions, such as those in Bitcoin.

“Virtual currency transactions, in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client’s reporting requirements,” AICPA Tax Executive Committee chair Troy K. Lewis wrote in a letter last Friday. “The issuance of clear guidance in this area will not only reduce the confusion and burden for tax preparers but also allow taxpayers to accurately comply with IRS rules.”

Lewis noted that the IRS worked “expeditiously” to release guidance two years ago to frequently asked questions in Notice 2014-21 about the tax treatment of virtual currency transactions. However, he wrote that additional guidance is still needed on topics not addressed in the notice. Lewis listed 10 areas in which guidance is requested:

• Acceptable valuation and documentation;
• Expenses of obtaining virtual currency;
• Challenges with specific identification for computing gains and losses;
• General guidance regarding property transaction rules;
• Nature of virtual currency held by a merchant;
• Charitable contributions;

• Virtual currency as a “commodity;”
• Need for a de minimis election;
• Retirement accounts, and
• Foreign reporting requirements for virtual currency.

“These currencies, such as Bitcoin, operate in decentralized environments where no entity or person is in charge of controlling or monitoring the asset,” Lewis wrote. “Therefore, the currency appears to have no location, which is a characteristic that would complicate foreign reporting compliance.”