IRS Writes Letter to Cryptocurrency Holders
At the end of last week, the IRS sent out warning letters to crypto holders about their tax liabilities. The letter reportedly asks crypto holders to file delinquent tax returns if cryptocurrencies were not reported in an earlier return, or to file an amended return including the exact amount of returns gained from trading between 2013 and 2017.
Why is this important?
The IRS taxes cryptocurrencies much as it treats real estate: applying a capital gains tax to all profits realized at year’s end. But cryptocurrencies are designed for a wide variety of use cases, including purchase of items and as a salary instrument. This can make it difficult to calculate gains. What’s more, financial documentation and data are not standardized around the world, to say the least. For example, the IRS does not have access to data from Bitfinex, one of the world’s biggest crypto trading exchanges, making it difficult for the agency to estimate the total amounts owed by traders.
A Reddit user who claims to have worked with the IRS states that the agency can only make estimates about back taxes. The letter-writing campaign, according to the poster, is an “unethical tactic” by the agency to ensnare cryptocurrency holders by “blindly scaring thousands of people.” The IRS is already in hot water with the crypto crowd for its leaked aggressive surveillance campaign.
SEC Issues Second No-Action Letter
The SEC has just issued its second no-action letter this year, this time to Pocketful of Quarters (PoQ), a gaming startup that intends to issue in-game tokens. The letter, which indicates the commission will not pursue action against the company, is a positive development for the overall token ecosystem as it portends greater clarity regarding regulation among developers.
For the most part, regulators have shied away from offering a clear explanation about the status of tokens and whether they are securities or not. This has resulted in a token market that is prone to booms and busts pegged toSEC crackdowns. While crypto enthusiasts have clamored for new regulations and/or more clarity, the SEC has mostly pointed to the Howey Test, whose criteria is still loose enough to allow the IRS to make seemingly subjective calls.
PoQ’s solution is two token offerings: its utility token, named Quarters (Q1). cannot be resold or traded on exchanges. Its Q2 token can be traded on exchanges.