TIGTA Calls On IRS to Beef Up Virtual Currency Compliance Infrastructure

By:
Chris Gaetano
Published Date:
Nov 9, 2016
Bitcoin

The Treasury Inspector General for Tax Administration issued a report saying that the IRS needs to develop a coordinated virtual currency strategy, provide updated guidance on virtual currencies, and find ways to identify the use of virtual currencies in taxable transactions. While the IRS has released guidance for virtual currencies, classifying them as property, it said there is "little evidence of coordination between the responsible functions to identify and address, on a program level, potential taxpayer noncompliance issues for transactions involving virtual currencies." 

It said that none of the service's operating divisions have developed any type of compliance initiative or guidelines for conducting examinations or investigations specific to tax noncompliance involving virtual currencies, and that there is no unified approach to addressing compliance issues in virtual currencies. It also said that it took no actions to address public comments it received about its initial guidance. Finally, it faulted the IRS for failing to separately identify transactions that used virtual currencies. 

TIGTA said the IRS needs to develop a coordinated strategy for virtual currencies that includes goals and how the agency intends to meet them, provide updated guidance reflecting necessary documentation requirements and tax treatments for the various uses of virtual currencies, and revise third-party information reporting documents to better track transactions using virtual currencies. 

TIGTA recommended that the IRS: 1) develop a coordinated virtual currency strategy that includes outcome goals, a description of how the agency intends to achieve those goals, and an action plan with a timeline for implementation; 2) provide updated guidance to reflect the necessary documentation requirements and tax treatments needed for the various uses of virtual currencies; and 3) revise third-party information reporting documents to identify the amounts of virtual currencies used in taxable transactions. The IRS agreed with TIGTA’s recommendations and plans to develop a virtual currency strategy including an assessment of whether changes to information reporting documents are warranted. The IRS also agreed that additional guidance would be helpful and plans to share the recommendation with the IRS’s Office of Chief Counsel for coordination with the Department of the Treasury’s Office of Tax Policy

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