In a recent press release, dated March 8, 2017, the Chamber of Digital Commerce and Steptoe & Johnson LLP jointly announced the formation of the Digital Assets Tax Policy Coalition (“the Coalition”). Made in response to a lack of guidance from the Internal Revenue Service regarding the tax treatment of digital currencies, the Coalition aims to “help develop effective and efficient tax policies for the growing virtual currency markets.” Essentially, the goal is to create clear guidelines that not only allow the digital currency sector to flourish, but also promote efficient tax administration by government officials.
The use of “virtual currency” has become an increasingly prevalent practice of both individuals and companies during the past few years for facilitating payment of goods or services, as well as, for investment purposes. Since virtual currency is the digital representation of coin and paper money or “real” currency, digital currency can be used as a means of exchange internationally. As the virtual currency market continues to advance, estate planning tools used to factor in digital assets may change depending on how this currency is valued. “Convertible virtual currency,” like Bitcoin, for example, is virtual currency that has an equivalent value in, or can be substituted as, real currency.
As the IRS became aware of the increasing use of virtual currency, Notice 2014-21 was issued in an effort to provide some initial guidance. Within the Notice, the IRS explains that virtual currency will be treated as property for federal tax purposes and that the sale or exchange of convertible virtual currency will generally pose tax consequences that may have resulting liabilities. Additional information regarding transactions using virtual currency was also addressed in a Q&A format, accompanied by a request for taxpayers to submit comments concerning future guidance.
With a lack of additional guidelines since 2014, the industry’s leading companies have remained uncertain as to the specifics regarding the tax treatment of digital assets, thus prompting the formation of the Coalition. From an estate planning perspective, determining how virtual currency may factor into your tax portfolio could have a larger effect on the tools used to protect those assets or transfer them upon death. The Coalition will likely affect the future of the virtual currency market itself, as well as, propel a discussion on the ability of legal administrators to provide guidance regarding new technological advances. In an effort to ensure proper compliance with the latest governmental regulations concerning your digital assets, consulting with a qualified attorney regarding your personal circumstances is an easy option to help you determine the best solutions for addressing these concerns, as well as, any that may arise in the future.