In light of the growing numbers of IRS letters sent to investors in cryptocurrency, Computis launches the Computis Tax Engine, a full-featured Tax API.
On August 14th 2020 an unknown number of US taxpayers received IRS Letters 6173, 6174, and 6174-A requesting the recipient to file amended tax returns, if necessary, as the IRS suspects the taxpayer to have misreported cryptocurrency transactions.
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CEO of Computis, Elizabeth Dodge CPA, comments: “The IRS Letters and the virtual currency question on the 2020 Form 1040 should be of grave concern to all taxpayers. The definition for virtual currency is very broad and the IRS letters state that required reporting of virtual currency transactions ‘include cryptocurrency and non-crypto virtual currencies.’ Non-crypto virtual currencies include a vast number of digital assets such as gaming currencies, gaming skins, frequent flyer miles, credit card points, customer loyalty cards, and many gift cards or online accounts, such as Starbucks Stars and Amazon Coins. The guidance for determining capital gains and losses is lacking and makes it difficult for taxpayers to comply with tax law.
“In addition,” she adds, “the virtual currency question asks the taxpayer to report acquisition of ‘any financial interest in any virtual currency.’ The IRS has no authority to require reporting of non-taxable financial transactions for virtual currencies or any other asset. Taxpayers have never before been required to report ‘financial interest’ in gold, bonds, stocks, or other property for this very reason.”
While the actions of the IRS are considered overreaching by many tax professionals, the intent is to ensure investors comply with current laws. Taxpayers need better tax preparation solutions to solve the challenge and expense of reporting their capital gains and losses.
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Historically, digital asset investments have been challenging to report causing misreporting, under reporting, and no reporting in some circumstances. Few existing tax products function properly given the unique nature of cryptocurrency investing; namely the ability to trade directly from one asset to another, and the capacity of an asset to be consumed in fractions smaller than 1/100th. For example, tax products expect dollars and cents, but Bitcoin can be bought, sold, traded, and consumed in units of 1/1000000th called a Satoshi.
The Computis Tax Engine accurately and efficiently generates tax and accounting reports for investors for traditional and modern assets allowing them to remain compliant with tax law. It offers cost accounting methods for conservative investors utilizing First in First Out (FIFO) plus an assortment of other advanced cost accounting methods including Specific Lot Identification (SI).
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