Proposed Law to Eliminate Federal Tax Liability for Many Cryptocurrency Transactions Remains Stalled
Under federal tax law, any time a U.S. taxpayer sells, trades or exchanges cryptocurrency for goods or services, this transaction is a taxable event. The taxpayer realizes either gain or loss on the transaction, and the taxpayer has an obligation to report this gain or loss to the Internal Revenue Service (IRS). Many cryptocurrency investors have fallen short of meeting this obligation in recent years—and many have found themselves in need of a Washington D.C. tax attorney as a result.
Each of the past three years, Representative Suzan DelBene (D-WA) has introduced a bill in the House of Representatives that would create a de minimis exception to the obligation for taxpayers to report cryptocurrency transactions. As explained in the official summary of the 2022 version of the bill, H.R. 6582, “This bill excludes from gross income, for income tax purposes, up to $200 of gain from the disposition of virtual currency in a personal transaction.”
The Virtual Currency Tax Fairness Act Would Eliminate Income Tax for Crypto Gains of $200 or Less
As reported by CoinDesk, H.R. 6582, known as the Virtual Currency Tax Fairness Act, has broad support in the cryptocurrency community as well as bipartisan support in the House. The same has been true of previous versions of the bill introduced in 2020 and 2021. Yet, the bill has never made it past the House Committee on Ways and Means, and it is currently sitting idle in the House.
If enacted, the Virtual Currency Tax Fairness Act would have significant implications for many cryptocurrency investors. Any sales, trades or exchanges resulting in less than $200 in gain would not need to be reported to the IRS—and the gain on these transactions would not be subject to federal income tax. For traders who regularly execute small transactions, this could result in substantial cumulative tax savings on an annual basis.
Notably, as proposed, the Virtual Currency Tax Fairness Act applies only to “personal transactions.” So, even if the bill were to become law, businesses would still need to report all sales, trades and exchanges (in addition to reporting all receipts of cryptocurrency as payment for their products or services).
Federal Tax Compliance Continues to Present Challenges for Cryptocurrency Investors
As a result of the obligation to report all transactions resulting in realized gain or loss, federal tax compliance currently presents significant challenges for cryptocurrency investors. While a de minimis exception would offer a welcome reprieve for many, it is unclear when – if ever – the Virtual Currency Tax Fairness Act will become law. With the IRS cracking down on cryptocurrency-related tax fraud, investors must do what is necessary to meet their reporting and payment obligations in 2022 and beyond.
Contact Washington D.C. Tax Attorney Kevin E. Thorn
Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, represents cryptocurrency investors and businesses in IRS audits and investigations. If you would like to speak with Mr. Thorn, please call 202-349-4033, email email@example.com or contact us online to arrange a confidential initial consultation.