In the United States, if you want to move your money around, you will need to use the banking system. And then comes the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the Internal Revenue Service (IRS) , the Commodity Futures Trading Commission (CFTC), and the Securities Exchange Commission (SEC), which are very much concerned with any forms of money transactions. And potential fraudulent play that can originate thereafter.
More interestingly still, these four organizations perceive cryptocurrencies as four different things, namely – money, property, commodity and respectively. It’s an interesting bunch of classifications and it does not seem to aid the regular customer make sense of it.
What Does This Bunch of Classifications Means?
Let’s be honest. When you have some of the major financial regulatory arms of the country competing over what the real meaning of cryptocurrencies is, nobody can really know what taxation rules can be accurately applied. Meanwhile, the American Institute of Certified Public Accountants (AICPA) has requested from the IRS to start working on a legal taxation framework for cryptocurrencies.
This is, in fact, the second time the AICPA has seen it fit to address the IRS, who had failed to provide an answer to a previous letter sent back on 10 June 2016. The AICPA Tax Executive Committee Chair Anette Nellen address the issue by saying: ‘We recommend the IRS release immediate guidance regarding the tax treatment of virtual currency transactions, similar to that of Notice 2014-21 so that authoritative guidance exists. Specifically, we request additional guidance that will address items from the original Notice 2014-21, and new issues that are relevant to the 2017 tax year, such as chain splits, forks that have arisen subsequent to the release of the original notice.’
Ms Nellen is not wrong to request more clarity about cryptocurrencies and regulation, as well as taxation, especially at a point when the IRS is toying with the idea of pursuing individuals who have failed to pay tax on Bitcoin. At the same time, nobody really knows how to tax cryptocurrencies.
The Industry is Quite Eventful
One of the mulled proposals is that cryptocurrency events, such as splits, forks, airdrops, and giveaways should also be coached in the legal language that will make it excessively easy for the purposes of taxation. The proposal goes that there should be some correlation between the US dollar and the worth of every cryptocurrency so that the US tax services ca realistically charge owners with tax without breaking them in the process.
What Can the User Do in Case of a Split?
When a split occurs, tax authorities would not necessarily know. It’s up to the users of the network to report it. The good news is that with so many users in the loop, even one filing a submission will notify the services. However, this is still only a suggestion. The AICPA wants the IRS to step up and create the so-called Election to Include a Virtual Currency Event as Ordinary Income in Year of Transfer.
But what is important here is the fact that an event is reported as an “ordinary tax event,” which allows the taxpayer to be able to state his taxes clearly and without fear of the government miscalculating what is owed on any one occasion.
AICPA Talks of Ordinary Income
AICPA also suggests to the IRS that cryptocurrency mining, another important aspect of the industry, should be perceived as a regular income and therefore should not entail any legal repercussions for owners. Cryptocurrency mining can also be capitalized and then depreciated. Why? Simply because in business you can account for the costs of running your venture.
There are trickier issues of course. AICPA has not addressed any costs that taxpayers incur as a result of lending or receiving ICO tokens. These are issues that need to be settled if there is to be a working legislation for everyone.
AICPA also prods the IRS that taxpayers should report the value of their cryptocurrencies and fiat currencies they have in foreign exchanges, for example.
Nellen had this to say about this particular point: ‘Virtual currency transactions, in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client’s reporting requirements. The issuance of clear guidance in this area will provide confidence and clarity to preparers and taxpayers on the application of the tax law to virtual currency transactions.’
Is the US the Only Regulator Out There?
Of course not. Many countries are now looking for elaborate ways to control their cryptocurrency industries. If you go to Asia, you will still notice that Singapore is quite well prepared to embrace cryptocurrencies, whereas places such as Japan and South Korea are worried over the potential fallout coming from unregulated snapping up of crypto goodies.
In the meanwhile, China has not had the slightest problem in fending off any incursions originating from cryptocurrencies. In fact, China has done such a sterling job of putting itself above any cryptocurrency out there, that the cryptocurrencies themselves have been dramatically changed.
China is now indeed pushing ahead with its own brand of digital FIAT currency. Yes, the Chinese dragon has decided to beat cryptocurrencies at their own game, and by the looks of it – it will be grossly successful.
Why Is the Chinese Dragon Going Digital?
China is the foremost digital economy in the world and the advancement of a digital FIAT currency would be an enormous boon for the entire industry and region. However, this event doesn’t mean that China wants to play ball. Quite on the contrary, the country is extricating itself from the established financial order and set up a new model which is very likely to take root.
Who joins this new club is a question that is open for debate.
Should the US and Europe React to China?
The US has largely lost its leverages over China. It is now in an outright competition with the country and it is largely seen as its equal, although China is clearly beating it in commerce, possibly innovation and military sectors, too.
Can the US act now and reverse the seemingly immutable future?. We believe that it’s too late for the West to be a trailblazer in the 21st century. It’s far more likely that we will witness the decline of the clout of the Western-imposed financial system, which will, in turn, give China even more clout.
The best thing that seems for us to do now is to follow in the steps of China and even seek the country’s deeper understanding of the digital commerce, which has been left out of the equation for so many European countries and the United States.
The Illegal Bitcoins in China
Meanwhile, China has dispensed with all cryptocurrencies, considering to even cut itself off foreign exchanges. This will certainl bring a bit of coldsnap between China and the rest of the financil system, but it is a well-considered move. China hopes to slash down the use of cryptocurrencies not only at home, but in the Singapore-based foundations, which are currently raking in money.
The Singaporean foundations have proven quite the catalyst of all sorts of investment – both from the East and from the West. Some of the world’s best outsides, like David Ritter from Penta, have been very active in Singapore and the region.
While China remains off limits, investors are still very much inclined to seek the capital of the country and kick start their next-generation crypto enterprises. Even though the context is fraught, there is nothing to fear and the cryptocurrency world is beating on – regulations or no regulations.