The Internal Revenue Service (IRS) has halted its proceedings of how individuals should report the earnings they make from bitcoin after failing to provide additional guidance to a notice released in 2014, according to the Tax Revolution Institute.
In March 2014, the IRS was reported to have released Notice 2014-21 to the masses. Their aim was to inform people how they should apply current tax regulations to the digital currency, bitcoin. However, it did the exact opposite when it stated that bitcoin was a property and not a currency for tax purposes.
Under the notice, the Tax Revolution Institute reports that ‘users are required to calculate the realized gains and losses of every transaction.’
In other words, if I buy one bitcoin at $500, and then spend it after it has risen in value to $750, I should report income of $250, and that goes for transactions as small as the purchase of a cup of coffee.
Of course, if the IRS had said that bitcoin was a currency rather than property, it would excuse individuals from calculating the profit they made by purchasing the bitcoin low and selling it high.
Additional Guidance Needed
Earlier this year, the American Institute of Certified Public Accountants is reported to have sent a letter to the IRS. This letter asked for further direction and clarification on digital currencies, listing ten areas of concern. The IRS, however, only responded by stating that they have no plans to update the 2014 notice.
It’s no wonder then that users of bitcoin and tax professionals remain confused over the entire issue. What’s more, the Tax Revolution Institute reports that the authors have struggled to explain the 2014 notice often sending any questions regarding it to other co-authors.
Bitcoin Is Growing Too Fast to Keep Pace With
While there are taxpayers’ intent on sticking by the rules of the IRS, the pace at which bitcoin is growing means that the IRS is struggling to keep up.
As a consequence of this and because the IRS hasn’t updated its 2014 notice, many bitcoin users and tax professionals are in the dark as to what they should do.
However, because many don’t see the importance of detailing the amount they earn through bitcoin and given the fact that the IRS don’t seem intent on prosecuting those who fail to mention their bitcoin earnings, it doesn’t seem likely that anything will change anytime soon.
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