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The Internal Revenue Service has considered several approaches to taxing the digital currency, a senior government official revealed. Speaking at a recent event, the official said the agency evaluated the different trade-offs offered by each model.
Erika Nijenhuis, who serves as a senior advisor to the Treasury Department’s office of fiscal policy, was speaking at the OECD’s 2020 Global Blockchain Policy Forum, Bloomberg Law reports. It revealed that the IRS can choose between a risk-focused approach such as the International Common Reporting Standard or one that focuses on tax liabilities. The latter would require users of the digital currency to report transactions.
The Treasury official also revealed that the IRS has weighed the burden that any approach will place on related parties such as exchanges and traders. In addition, the agency must consider the benefits of each approach, such as improved compliance.
Nijenhuis said: “There are compromises between all of them and we are working hard thinking about all these problems.”
Nijenhuis was joined in the panel by Lawrence Zlatkin, the vice president of taxes at the US exchange Coinbase. Zlatkin urged the IRS to opt for the risk-focused approach. He said collecting large amounts of aggregate data will place a huge burden on exchanges but offer little benefit when it comes to enforcing tax laws.
He said, “You get tons of information, but more isn’t always better.”
Also on the panel was Lisa Zarlenga, partner of Steptoe & Johnson LLP, who also criticized the transaction reporting approach. According to Zarlenga, this approach will leave a heavy burden on digital currency users. While exchanges will have to report aggregate information to authorities, individual taxpayers will still have many calculations to make, such as total gains or losses on their digital currency holdings.
There will always be some level of compliance obligation for the taxpayer, “he said.
The IRS continued to improve its ability to tax digital currency holders. As CoinGeek reported a month ago, the agency issued a guide on who should disclose their digital currency business. Anyone who has sold digital currencies, traded them for goods, or used them to buy goods are among those who must report their business to the agency.
The IRS also recently announced that it will be offering $ 625,000 to anyone who can create a tool to track Monero or Layer 2 network protocol transactions.
See also: Keynote speech by US Representative Darren Soto at CoinGeek Live, Balancing Innovation & Regulation for Growth of Blockchain Technology
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