The IRS is Catching Flack Again for Weak Bitcoin Guidance (This Time on IRAs)
US citizens who invest retirement money in bitcoin or other digital currencies could face unforeseen tax consequences as a result of IRS policies, a government report released this week argued.
Originally prepared in early December, the Government Accountability Office (GAO) published a report on Monday in which it argued that the IRS needs to do more to inform taxpayers about the potential liabilities they face when investing their individual retirement accounts (IRAs) in blockchain-based assets.
As the report states, US law offers a broad degree of leeway when it comes to the types of assets that people can invest in as part of an IRAs (ranging from precious metals to real estate). That said, IRS guidance as it exists today creates the risk that taxpayers may not be entirely aware of tax liabilities (or penalties) that may arise from these investments, the GAO argued.
The report's authors note:
"Retirement accounts allowing such unconventional investments increase owners' responsibilities in ways they may not understand – and mistakes can trigger taxes and penalties. Moreover, account custodians may prematurely close an account or let valueless assets and fraud go undetected because they did not accurately determine the value of unconventional assets."
In a way, the report's recommendations – with which the GAO said the IRS "generally agreed" – mirror criticisms highlighted in a separate report prepared by the inspector general of the US tax agency.
That report, published in November by the Treasury Inspector General for Tax Administration (TIGTA), said the IRS is at risk of not catching potential tax cheats who use digital currencies to avoid reporting requirements. Tax professionals have also blasted the agency for failing to provide more in-depth guidance.
The IRS has since moved to expand its oversight of digital currency transactions, seeking information on users from digital currency exchange Coinbase as part of that push. (Though it has generated criticism here, too).
In total, more than 485,000 IRA accounts (worth an estimated $49.7bn) are invested in unconventional assets, the GAO said, relying on information gathered from 17 custodians.
However, it is unclear how many may be invested in bitcoin or digital currencies.
The full report can be found below:
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