Cryptocurrency continues to gain ground and is not going away. New legislation would close profitable loopholes for crypto users, and the IRS is signaling measures that impact transactions involving some cryptocurrencies.
Regulation of the cryptocurrency space is in its infancy. As the crypto market roller-coastered in recent years, many investors and companies have steered clear, waiting for the dust to settle. While crypto is still a regulatory grey area, the strength of the crypto market is beginning to drive regulation.
Many people have heard of bitcoin, dogecoin, and ethereum. These are the tokens associated with volatile swings in value. Stablecoin is a different type of crypto with its value tied to commodities like a fiat currency such as the dollar or euro, or oil and gas.
Stablecoin like Tether or USD have been used on crypto exchanges as a stable currency with which to convert cash, and then use for Bitcoin purchases, banking, or other financial purposes. Because of the popularity of stablecoin and interest shown by industry, regulators are becoming concerned about larger financial risk around stablecoin business.
While stablecoin is tied to commodities, it still retains some instability. The Treasury Department, which is expected to release a report on stablecoins later this fall, is concerned about the $30 billion stablecoin in circulation that are tied to the U.S. dollar. Despite its name, those issuing stablecoin may not have the cash reserves they advertise.
In other news, a proposal from the House Ways and Means Committee would eliminate a juicy loophole that would cost cryptocurrency holders. The bill would make crypto currents the target of the anti-abuse regulations that apply to securities, like stocks. These rules would prohibit crypto sellers from gaming digital coin in what are called “wash sales.” The technique involves selling coin at a loss and claiming a tax benefit, and then repurchasing the same coin before it rebounds in price.
And elsewhere, the Office of the Chief Counsel of the IRS released a memorandum this summer advising that ether, litecoin, and bitcoin do not qualify for tax deferred savings that might be expected with like-kind exchanges, such as you might find when someone sells real property and buys another property to gain the tax benefit.
Digital currency, its regulation, and use are changing fast. If you're trading in that space, remember that sketchy rules around crypto are not always a good thing and that real risk is involved. As well, digital currency held in wallets is touted as secure, but wallets may be hacked by someone with the will and a way.
Speak with an experienced tax attorney about compliance, a criminal tax investigation or an IRS audit
The tax group at Robert J. Fedor, Esq. LLC offers strategic representation to clients throughout the country and abroad from offices located in Cleveland and Chicago. From payroll tax issues to allegations of tax fraud, we can help. Schedule a free consultation by calling 800-579-0997 or contact us today.
