The American Institute of CPAs is urging the Internal Revenue Service to issue immediate guidance about the tax treatment of virtual currencies to supplement existing guidance that the group says fails to meet taxpayers’ needs.
“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,” Annette Nellen, chair of the AICPA Tax Executive Committee, told the IRS in a letter on Wednesday.
“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 suggested that the guidance on virtual currency transactions could supplement guidance in IRS Notice 2014-21.
AICPA asked the IRS to issue a FAQ addressing the following 12 areas:
- Expenses of obtaining virtual currency
- Acceptable valuation and documentation
- Computation of gains and losses
- Need for a de minimis election
- Valuation for charitable contribution purposes
- Virtual currency events
- Virtual currency held and used by a dealer
- Traders and dealers of virtual currency
- Treatment under Internal Revenue Code (IRC) section 1031
- Treatment under IRC section 453
- Holding virtual currency in a retirement account
- Foreign reporting requirements for virtual currency
AICPA suggested the new FAQ address issues such as:
Q: Are taxpayers allowed to use an average of different exchanges?
A: Yes. Taxpayers are allowed to use an average of different exchanges as long as they are consistent in how they calculate the valuation.
Q: May taxpayers use the average rate for the day to calculate the exchange rate?
A: Yes. Taxpayers may use the average rate for the day to calculate the exchange rate, provided they are consistent in how they make this determination for every virtual currency transaction.
Q: May taxpayers rely on virtual currency tax software as a reasonable and consistent method for determining fair value?
A: Yes. Taxpayers may rely on virtual currency tax software as a reasonable and consistent method for determining fair value if the software is consistently using aggregated price data.
— Check out The Advisor and the Quant: Cryptocurrencies and Financial Planning on ThinkAdvisor.