At the International Tax Symposium held in Houston on Nov. 8 and 9 by the State Bar of Texas Tax Section, Daniel N. Price of the IRS Office of Chief Counsel reportedly said the IRS is not contemplating a separate disclosure program related to offshore cryptocurrency reporting. The IRS recently closed a comparable program, the offshore voluntary disclosure program (OVDP), in which taxpayers with foreign accounts could voluntarily report transactions to the IRS and receive certain benefits, and Mr. Price's comments were meant to dispel a rumor that the IRS would launch a similar program encouraging taxpayers to disclose virtual currency transactions.
Many taxpayers struggle with a myriad of tax issues that arise in the cryptocurrency context, including the following:
- Whether taxable gain arises from the exchange of one cryptocurrency for another (including potential application of the pre-2018 like-kind exchange rules).
- Tax treatment of hard and soft forks, air drops, and exchanges of tokens for goods, services or other items of value.
- Valuation issues arising from a variety of transactions, including token grants, option grants and air drops.
- FBAR reporting for cryptocurrency assets held offshore.
- Ability of non-U.S. persons to trade in cryptocurrencies through U.S. agents without being subject to U.S. tax.
- Tax treatment of ICOs.
- Classification and potential tax treatment of non-U.S. entities that may be used in effecting ICOs.
- Potential application of broker, barter exchange and other reporting rules.
The absence of an OVDP-type program means that taxpayers will not have the benefit of reduced penalties if their tax treatment and reporting of these and other issues are incorrect. Further, because no reference to guidance related to cryptocurrencies is made in the 2018-2019 Priority Guidance Plan, released yesterday by the IRS and Treasury, it is unclear whether the IRS will be providing any additional guidance for taxpayers anytime soon. Thus, traditional means of reducing penalties by taking positions based on a learned application of the tax law to a taxpayer's facts will be needed to minimize tax-adverse consequences that may arise when dealing with cryptocurrencies.
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