WASHINGTON — Since the Internal Revenue Service declared virtual currency to be a form of property in 2014, all bitcoin transactions have become a tax reporting nightmare. Now, two Congressmen are proposing to make cryptocurrency more viable by easing up on those requirements.
A bill introduced Thursday by Reps. Jared Polis, D-Colo., and David Schweikert, R-Ariz., would allow cryptocurrency users to make transactions of up to $600 without paying taxes. In addition, the legislation would require the Treasury Department to create a process for virtual wallets to report gains and losses directly to the IRS, just like stock brokers do for their clients.
Such changes could allow consumers to use virtual currencies as if they were actual currency when attempting to make payments, according to Jerry Brito, the executive director of Coin Center, an industry advocacy group.
Today, “if you're trying to use bitcoin as a payment method to buy a cup of coffee or to buy an MP3 online, it means all of those transactions are subject to those tax requirements,” he said. “That creates a lot of friction for bitcoin as a payment method.”
With Polis and Schweikert’s bill, it would become easy to make these types of small purchases legally, Brito noted. “This will now make it a no-brainer,” he said.
Additionally, allowing wallets to share gains and losses information on their customers to the government could make the entire industry appear more legitimate in the eyes of the law.
The IRS has expressed deep skepticism about cryptocurrency investors’ willingness to report their gains and losses for tax purposes. In November, the agency sued the bitcoin exchange Coinbase, asking it to reveal the names, addresses and transaction details on all its users who were active between 2013 and 2015.
This prompted widespread outrage among virtual currency users, many of whom are drawn to the technology for its privacy guarantees.
But if companies like Coinbase were already reporting to the IRS as a matter of course, such a move would not have been necessary, said Brito.
“Right now, exchanges don't provide this information or at least don't provide it in a way that the IRS would accept,” said Brito. With this bill, “the report would be standardized in the same way it is for brokers.”