Having consistently warned crypto traders to avoid cryptocurrencies tax evasion, the U.S. tax authority is now telling exchange platforms to improve their reporting standards. However, some level of clarity is required for exchanges to maintain crypto tax reporting compliance.
Monitoring Crypto Exchange Tax Reporting Compliance
According to an Internal Revenue Service (IRS) audit published back in September, the U.S. tax agency is looking to improve crypto tax reporting by cryptocurrency exchanges. In the report, the Treasury Inspector General for Tax Administration (TIGTA) noted that the IRS did not have complete information about the crypto trading activities of exchange users.
TIGTA further noted that some crypto exchange platforms operate as Third-Party Settlement Organizations (TPSOs). Such cryptocurrency bourses may need to submit Form 1099-B since they can be classified as brokers.
However, the TIGTA report stated that the IRS will have to provide greater tax reporting clarity to help crypto exchanges become more compliant with relevant laws. The convoluted nature of the current IRS cryptocurrency tax regime remains a major point of criticism among industry stakeholders.
As previously reported, the IRS even agree back in July that some of its crypto tax laws were not ideal. In March, the IRS and industry stakeholders did hold a parley to discuss some of the thorny issues surrounding cryptocurrency tax administration in the country.
The recent focus on crypto exchanges comes amid fresh warnings by the IRS against cryptocurrency tax evasion. The U.S. tax authority has sent a series of warning letters to virtual currency traders reminding them of their tax obligations.
To preempt any cases of ignorance, the IRS has reportedly edited its form 1040, placing the “crypto question” in a more prominent position on the document. Tax experts say the move is a clever strategy by the IRS to prevent taxpayers from claiming ignorance about their cryptocurrency tax responsibilities.
Back in August, the IRS declared that crypto earned from micro-tasking jobs was taxable income. According to the tax body, funds received in exchange for micro-tasking activities constituted the receipt of consideration for services offered which is a taxable event.
As part of efforts to fight crypto tax evasion, the IRS is also looking to track transactions on the popular privacy coin Monero (XMR). The agency recently posted a $625 million bounty for crypto forensic experts to develop a Monero tracing system.