Cryptocurrency tax guidance and reporting are “moving in the right direction”

Thoughts on cryptocurrency taxation from a CPA and crypto-expert

“I’m starting to see that people are becoming more compliant when it comes to taxes,” states Shehan Chandrasekera on an episode of McBride for Business. Shehan is a partner at JAG CPAs & Co., as well as an advisor to BitTaxer. Shehan expressed his optimism for clarity in cryptocurrency tax law, in addition to compliance, “because we are seeing lawsuits coming out against ICOs and the IRS sending notices…. It’s moving in the right direction, but just very slowly.”

Shehan Chandrasekera, CPA, Partner, Advisor

For those who share a common uncertainty around how to account for transactions that have taxable implications, which simply appear as transfers in and out of exchange wallets, Shehan was similarly optimistic in his feedback. “I haven’t seen the IRS questioning if something was a gain, purchase or transfer.”

Mining, forking, and reporting are three areas of particular concern for cryptocurrency owners and advocates. Previously, in a featured post on The Tax Adviser, Shehan delved into the tax ramifications of virtual currencies, including crypto-mining:

“Interestingly, both active and passive miners may generate ordinary gains (not capital gains) as a result of a sale of new virtual coins to others. This is because new currencies mined may be ‘inventory’ in the hands of the taxpayer. Sale of this inventory may trigger unexpected ordinary gains.”

During his interview on McBride for Business, Shehan directed the hosts’ attention to the two other points of importance, i.e., forking and reporting.

Cryptocurrency forking creates confusion among cryptocurrency owners and traders in regards to taxation, such as the recent fork of bitcoin creating Bitcoin Cash or the upcoming, and highly discussed, fork of Bitcoin Cash creating Bitcoin SV and Bitcoin ABC. Shehan, however, focuses on a more simple approach. To make “everything clear,” he believes that “the new coins that you receive after a fork should have a zero basis…. With the IRS, there are a lot of gray areas. As an advisor, I tell [individuals and organizations] what I think is reasonable and what isn’t. Quite frankly, the IRS have bigger issues to tackle. Crypto and blockchain are just not in their priorities for the next few years.”

R. Shawn McBride, Attorney and Host of McBride for Business.

Though forking and mining stand as complex tax issues for many, recordkeeping and reporting stand as the premier point of contention. Shehan, as a CPA vastly knowledgeable in cryptocurrency, believes finding the tools for effective record keeping of “nightmare” situations like forking, mining, transfers, etc. is becoming easier:

“There are more and more coming out to track complicated situations, rather than just websites and platforms connecting to an API. These new sites and platforms are allowing the CPAs to indicate if the coins received during a fork have a zero basis or not. I have used several coin tracking softwares. BitTaxer allows for the most flexibility, because, in complicated situations, it allows you to always have an opportunity to select your basis. BitTaxer allows the CPA to do the bookkeeping, just like Quickbooks. That’s a differentiator. Other platforms work great, as well. They just track the fair market value or provide form 8949. However, there are situations where the platform doesn’t really know if a coin is coming from a transfer or gain.”

Watch and listen to the full interview here in the McBride for Business Youtube Channel.

Shehan Chandrasekera, CPA joins BitTaxer from Houston, TX, and is a Partner at Jag CPAs & Co., as well as being a founding member of the Houston Blockchain Alliance. He was one of the first CPAs to have a published academic article on Cryptocurrency, is a sitting member of FinTank, recently spoke at the Global Blockchain Summit in Chicago, and will be speaking at the AI Blockchain Summit in DC at the end of this month. His passion for the space is tremendous, and we’re happy to have him on board.