Cryptocurrency holders have long wrestled with their tax obligations. These fiduciary duties have been complicated by tax agencies, which are several steps behind technology and now playing crypto catch-up. Updated guidelines from the U.S. and U.K.’s tax agencies were finally released this year, but the initial relief felt by conscientious bitcoiners was to prove short-lived, for on closer examination, the documentation has left many crypto questions unanswered.
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It’s 2019 and Tax Is Still Taxing
The lack of uniformity regarding tax on crypto earnings, with some national governments happy to kick the can down the road and others determined to immediately collect their pound of flesh is frustrating, to put it mildly. The latest guidelines from Her Majesty’s Revenue and Customs (HMRC) for U.K. residents has succeeded in muddying the already-feculent waters.
Once again, a tax authority’s attempt to provide clarity on crypto taxation has become, instead, a wellspring of uncertain questions. It was the same when the IRS published crypto tax guidance in 2014, and again in October of this year. So, why are such powerful arms of the state unable to lay down clearly-defined tax principles on virtual currency? Is it because the powers-that-be do not fully comprehend this rapidly-evolving environment or its underlying technology? Or is it the case that the nature of forks, airdrops and token sales is incompatible with hard-and-fast taxation rules?
Robin Singh is the founder of crypto tax platform Koinly. “Part of the problem,” he explains, “is that regulators do not understand cryptocurrencies. In the latest IRS guidelines, for example, the IRS refers to forked coins as “airdrops after a fork”. They are oblivious to the fact that there is no actual airdrop – the ledger is simply copied. This misinterpretation has given rise to the issue investors now face: paying income tax on forked coins they may have no intentions of using.”