Coin Center Exec. Director Calls for Crypto Fork Tax Clarity in USA

Coin Center Exec. Director Calls for Crypto Fork Tax Clarity in USA

Leading American cryptocurrency think tank Coin Center published an August 21st column by the group’s executive director Jerry Brito entitled “IRS inaction on cryptocurrency can hurt taxpayers, but Congress can help.” In it, Brito argued the U.S. Internal Revenue Service hasn’t been clear on how cryptocurrency forks, e.g. bitcoin cash, should be taxed and that the agency should accordingly be lenient on crypto users that sincerely tried to get their taxes right. 

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Brito: ‘Confused Taxpayers Shouldn’t Be Penalized’

In his August 21st column, Coin Center executive director Jerry Brito called out the legislative uncertainty surrounding cryptocurrency taxation, and specifically how such taxation applies to crypto chain splits, in the United States.

Brito began the piece proactively by hailing the possibility of Congress creating a so-called “safe harbor” to ensure that American crypto users who tried their best on their taxes could enjoy legal protection. The executive director noted the safe harbor could “expire upon the issuance of specific and adequate guidance from the IRS.”

Brito then went on to poke holes in the current regulatory state by pointing out a myriad of questions that naturally arise from the U.S. legal code’s inadequate bareness when it comes to cryptocurrencies. For one, he asked whether receiving a forked coin constituted an “income event” and if it had a “holding period” or “proper basis.”

The Coin Center executive noted that, due to standing law, taxpayers who didn’t wander through this Kafkaesque thicket appropriately could be opened up to penalties.

Brito said such a dynamic shouldn’t be the case:

“Until the IRS starts to give clear answers to basic tax questions taxpayers have about cryptocurrencies, taxpayers who take a shot at reporting their cryptocurrency-derived income shouldn’t be hit with penalties on top of their tax liability. This is especially true for taxpayers who have a record of paying their taxes on time when the rules are clear.

It’s important to note that taxpayers who hold cryptocurrencies usually have little control over when forks occur. Furthermore, after a hard fork takes place, holders of the original token are entitled to claim the resulting new tokens––but many people never do. Some never realize the hard fork took place, because they don’t keep up with cryptocurrency news. Some can’t be bothered to go through the bureaucratic process of contacting their cryptocurrency exchange to take control over the new tokens. And some don’t have enough technical knowledge to claim the tokens by engaging directly with the blockchain itself.”

The executive director concluded his column in saying “the time for Congressional action to protect taxpayers” was here and now.

That Feeling When Everyone’s Telling You Something Different

Brito’s lines of query are on point and hearken to the patchwork, labyrinthine legislative situation that crypto users in the U.S. currently face.

For example, when the U.S. Securities and Exchange Commission looks at the cryptoverse, they “see a lot of securities.” The Commodity Futures Trading Commission hails digital assets as commodities. The IRS considers cryptocurrencies to be property and subject to capital gains unless they are received as income. FinCEN, the law enforcement arm of the Department of the Treasury, views crypto to be tender. All of these competing views have different legal ramifications that are seemingly impossible to work through for anyone without further clarity from Congress.

Congress needs to step in – sooner rather than later.

Whether Capitol Hill drags its feet or not, cryptocurrencies’ legal status is an issue Congress will inevitably get to, especially as cryptocurrency investors are starting to crop up in Washington. Why waste time then, Brito suggests.

What’s your take? Do you think the lack of legal clarity is making America fall behind in cryptocurrency innovation? Let us know in the comments below. 

Images via Pixabay

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