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In the US, cryptocurrencies are regulated by several government agencies. These agencies are the Financial Crimes Enforcement Network (FinCen), the Office of Foreign Assets Control (OFAC), the Internal Revenue Service (IRS), the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC).

Of course with multi-classification of cryptocurrencies, definition varies between each agency and the taxation gets hazy depending on the type of project and which agency you listen to.

On May 30th, the American Institute of Certified Public Accountants (AICPA) sent a second letter to the IRS asking for more direction on cryptocurrency taxation beyond Notice 2014-21 which treats them as property.

Annette Nellen, chair of the AICPA Tax Executive Committee, said “We recommend the IRS release immediate guidance regarding the tax treatment of virtual currency transactions, similar to that of Notice 2014-21, and new issues, such as chain splits, forks that have arisen in 2017." Cryptocurrency chain splits, forks, airdrops and giveaways are subject to price discovery and therefore, create a unique challenge in determining a USD translation for virtual currencies that newly come into existence for US tax purposes.

AICPA suggests that taxpayers should report events, by making an “Election to Include a Virtual Currency Event as Ordinary Income in Year of Transfer” within 30 days of the event. If a taxpayer does not make the election, then the virtual currency event is reported as ordinary income when a taxpayer later disposes of the virtual currency received in a prior event. If the currency is a capital asset the it would generate a capital gain or loss and the income would become the basis in the virtual currency.

They also suggested that cryptocurrency mining should be treated as ordinary income and the expenses of mining deducted as incurred. Cryptocurrency mining equipment should be capitalized and depreciated like any other property.

“The rapid emergence of virtual currency has generated several new questions on how the tax rules apply to various transactions involving virtual currency and activities and assets related to it. Moreover, the development in the number of types of virtual currencies and the value of these currencies make these questions both timely and relevant to a growing number of taxpayers and tax practitioners”, Nellen added.

AICPA’s letter to the IRS begs for guidance to define “reasonable manner” since there could be huge differences in pricing on different exchanges. Taxpayers should be allowed to use an average of different exchanges as long as they are consistent for every cryptocurrency transaction.

“Virtual currency transactions, in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client’s reporting requirements. The issuance of clear guidance in this area will provide confidence and clarity to preparers and taxpayers on application of the tax law to virtual currency transactions” concluded Nellen.

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