2019 has seen significant developments in the crypto tax reporting tools and guidance available from the IRS on how to address previously undisclosed crypto assets.
A recent interview noted that reports from crypto exchanges likely lacked the requisite data points that a taxpayer needs to meet its U.S. tax filing obligations. The interview noted that certain tools allow taxpayers to aggregate all of a taxpayer's crypto asset transactions across all wallets and exchanges, effectively summarizing all transactional activity for 2018. Taxpayers can then use the report in filing their U.S. tax returns.
Several recent startups have worked to develop tools such as this but mainly for the use of fund managers and accounting firms. These specific tools are intended to comply with the American Institute of Certified Public Accountants' Service Organizational Control reporting standards, which will permit the startups to provide certified statements of crypto transactions to its customers. The provision of the certified statements may lead to an increase in market participation by investors that were otherwise concerned about the complexity of U.S. tax reporting obligations.
In addition, certain crypto exchanges have paired with companies specializing in tax software and preparation to upload their exchange activity directly into the tax software. The software company will then assist the customers with determining what events are taxable and in turn help the customers satisfy their U.S. tax obligations.
With respect to enforcement, the IRS recently released a new Form 14457 "Voluntary Disclosure Practice Preclearance Request and Application" that includes a question on disclosing special features. One category listed under this question is virtual currencies. The form is used to make a preclearance request and determine the eligibility of a taxpayer to utilize the IRS' voluntary disclosure program.
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