If you had some Bitcoin in your wallet on July 31st, 2017, by the end of the following day, you’re most likely to have the same amount in bitcoin cash because hey– that money is yours and you rightfully earned it. If American owners of Bitcoin got Fiat instead on that date, they would be required to report it as taxable income for their 2017 income tax returns. But what about receiving Bitcoin cash? Will the IRS require taxes for it?
The last time the Internal Revenue Code (IRC) was revised was back in 2014. So, it’s not that surprising to find out that there are no clauses or regulations that address cryptocurrencies. Taxpayers who received coins in the past year are facing big questions when it comes to filing digital currency because of the lack of regulation.
Uncertainty over Currency
The Supreme Court defines taxable income as anything that’s classified as “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
Since receiving or having Bitcoin can be classified under “accession to wealth,” there’s already a chance that it could get taxed– but, it’s not something that’s “clearly realized” nor is it something that people have “complete dominion” of. However, since there are no clauses and regulations regarding cryptocurrencies, there’s just too much confusion in the matter. No matter how hard you think about it, it’s the IRS’ fault as to why cryptocurrency owners are 50/50 regarding the complete reporting of their income. They’re going to need to amend the Internal Revenue Code to keep up with digital trading and currencies.
A Cautious Approach
If someone decides to report that they received Bitcoin or other cryptocurrencies as their income, how much should they report? Think about this: if someone receives a payment via check, they have no choice but to report it since cashing it in will automatically be put on their file.
So far, there are no ways for the government to publicly store records of cryptocurrency transactions. There’s a reason why folks prefer digital currency lately– it’s all about anonymity. For now, there’s no viable “market” for cryptocurrencies in the current climate of the IRS. However, expect the rules to get amended soon enough, especially now that cryptocurrencies are getting stronger.
In summary, the current laws in place are very unclear when it comes to taxing Bitcoin and other cryptocurrencies. Since the amount realized cannot be determined that easily, taxpayers have zero ideas on how much they should declare on their returns.
Since 2017 and 2018 have seen so many huge events in the cryptocurrency world, there’s no denying that the IRS would most likely issue amendments and new regulations regarding the matter. Then again, will they be able to pull it off? Their agency is probably too busy dealing with a huge tax legislation that was passed very recently.