IRS Hopes to Tackle Information Reporting in Next Crypto Guidance

The IRS’s next round of crypotcurrency guidance will likely focus on information reporting, the agency’s top lawyer said.

“It’s no mystery that when you have any kind of information reporting your level of compliance increases dramatically,” IRS chief counsel Michael Desmond said Oct. 17 during a Washington event hosted by the Tax Policy Center.

The first priority will be guidance under tax code Section 6045, which lays out information reporting requirements for brokers. The tax code defines the term “broker” as a dealer, a barter exchange, or any other person who regularly acts as a middleman with respect to property or services.

The agency wants to clarify how those rules apply to cryptocurrency transactions.

The IRS included the issue in its most recent priority guidance plan released Oct. 8—a day before the agency released its first cryptocurrency guidance (Rev. Rul. 2019-24) in five years.

“We’ve already had folks come in and meet with us on that,” Desmond said about the priority guidance plan project. “We’re certainly looking to get more comments on that.”

Foreign Exchanges

The IRS is also considering international reporting requirements under the Foreign Account Tax Compliance Act and whether cryptocurrency accounts held by foreign exchanges need to be reported on the Financial Crimes Enforcement Network’s Form 114, Report of Foreign Bank and Financial Accounts.

FinCEN, in response to questions from the American Institute of Certified Public Accountants, recently said cryptocurrency held offshore is not currently reportable for FBAR purposes.

Desmond said the IRS is having ongoing discussions with FinCEN about this issue.

“I think that is a particularly important area going forward because we certainly recognize that without the international reporting there could be a trend to move some of these transactions offshore and that’s not a trend that we want to encourage,” he said.