On Tuesday, March 3, National Conference of CPA Practitioners (NCCPAP) President Neil H. Fishman, CPA, CFE, FCPA, CAMS, and its Past President, Tax Chair and IRS National Public Liaison, Stephen Mankowski, CPA, attended the IRS Virtual Currency Summit in Washington, DC, hosted by IRS Commissioner Charles Rettig and Assistant Deputy Commissioner, Compliance Integration John Cardone.
There were several discussion panels on topics including: Technology; A View from two Virtual Currency Exchanges (Coinbase and Kraken); Tax Preparation; and Regulatory Guidance and Compliance. Summary points of each panel are highlighted below:Panel #1: Technology Update
Panel #2: A View from two Virtual Currency Exchanges (Coinbase and Kraken)
- Crypto companies are emerging throughout the U.S. as a healthy community where regulators are engaged. Bitcoin was first issued in 2009 and is roughly 60% of the market.
- Regulation is starting to adopt rapidly; however, bad actors will continue to seek out areas with lower or no regulation and/or lack of controls. There are some good improvements, including standards bodies.
- Kiosks are available throughout the U.S. and many use facial recognition software along with KYC to verify customers. Know Your Customers, or KYC, is the process of identifying and verifying identities of customers in cryptocurrency markets. Kiosk fees range from 5-24+% and some also charge a transaction fee.
- Crypto tax calculators started to appear after the IRS added a question to Schedule 1. Many are providing different answers and valuations.
- Some investors use various blockchains to help determine the basis in the transactions. This works for public coins, but not privacy ones and does not necessarily provide the cost basis, but it can be searched by date.
Panel #3: Tax Return Preparation
- From a tax perspective, most exchanges are not providing data because it is not required. The data exists, but not in 1099-B format. There is no benefit for the larger exchanges to NOT do things right. A balance needs to occur to be feasible yet not limiting.
- The IRS has determined cryptocurrency to be ‘property’.
- The biggest risk in cryptocurrency is security. Customers go to larger exchanges because of the level of security.
Panel #4: Regulatory Guidance and Compliance
- Is virtual currency appropriately placed on Schedule 1? There is confusion as to the completion and inclusion of Schedule 1 with the tax return. This question does not address ownership or transacting of virtual currencies in pass-through entities. Financial interest: does this include buy and hold transactions, which the IRS might not necessarily be permitted to ask?
- There are several elements for the accounting methods used to value VC. FIFO (First-In, First-Out), Specific ID (Specific Identification), and FMV (Fair Market Value) are just a few examples. There’s also a new method called HIFO (Highest-In, First-Out). The methodology gets more complicated due to different exchanges often holding similar virtual currencies. The IRS code specifies use of Specific ID, but no binding authority exists at this point.
- The taxpayer needs to maintain their records to support data used on tax returns; the investments in virtual currency fall under these rules.
- While cryptocurrencies are classified as property, there are sub-classifications under that. This was on Notice 2014-21.
- The use of the virtual currency should determine the government reporting, if subject for reporting. Some transaction could result in data appearing on multiple areas, such as payment for goods 1099-Misc or sale of an asset.
- Some countries are considering the adoption of virtual currency as a fiat (legal tender) currency. This could impact the asset classification as property.
There are many complexities for someone who owns or is considering purchasing any type of virtual currency. We at NCCPAP recommend you discuss these matters with your CPA. If you need help locating a qualified CPA, please reach out to us.#News