According to an official from the United States Internal Revenue Service (IRS), ‘like-kind’ tax exemption has not been applied for taxpayers with crypto transaction records.
This holds true for transactions even before 2018. After changes were introduced to the 2017 taxation structure, taxpayers were prohibited from utilizing the tax exemption scheme to defer the payments.
A like-kind exchange can be defined as a tax-deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset.
Before tax legislation was changed in December 2017, the tax deferment scheme could have included the exchange of one business for another – or one piece of tangible property, such as artwork or heavy equipment, for another. But crypto transactions, according to IRS, have been excluded from this category of tax exempting entities. This has caused some confusion among crypto traders and investors who were unable to reap the benefits of the scheme.
The remarks on the U.S. crypto taxation were delivered by Suzanne Sinno, an attorney in the IRS Office of the Associate Chief Counsel, at the American Institute of CPAs conference. She has also worked on the recent IRS document on cryptocurrency guidance.
IRS Seeks to Clarify Crypto Tax Guidelines
The document sought to mitigate the confusion that persisted among U.S. citizens who were conducting commercial activity through digital currencies. It documented a series of frequently asked questions, identifying the rules governing U.S. taxation of digital currencies.
The document, which is fairly simple in its structure and content, was intended to improve an average U.S. citizen’s understanding of crypto taxation conveniently. The document basically states that those who possessed digital currency and engaged in direct transactions (sell or exchange it) are subjected to U.S. tax laws. In case the digital currency is transferred to a person as a salary, then it is to be taken as taxable income. However, if the cryptocurrency has been received as a gift, then there is no immediate tax to be levied on the person.
Tax laws pertaining to cryptocurrency holdings have always remained complex for most Americans. While the 2017 amendment to tax legislation made it clear that in most cases owners of digital currency were liable to pay taxes, the exact rules governing the taxes were never clear.
The report by Sunno seeks to clarify the ambiguity in earlier editions of crypto guidance documents by stating that taxpayers have been authorized to apply the like-kind exchange principle.
