Internal Revenue Service (IRS)

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Internal Revenue Service (IRS)
Irs-logo.jpg
Founded 1862
Headquarters Washington, D.C.
Key People Charles P. Rettig, Commissioner
Twitter @IRSnews
LinkedIn Profile
Facebook IRS
Website IRS.gov
Releases Company News

The IRS is a division of the Department of the Treasury and one of the world's most efficient tax administrators. In 2004, the IRS collected more than $2 trillion in revenue and processed more than 224 million tax returns.[1]

The IRS is responsible for administering and enforcing the Internal Revenue laws and related statutes, except those relating to alcohol, tobacco, firearms, and explosives.[2]

History

Congress passed a law establishing the Bureau of Internal Revenue on July 1, 1862. It also created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.

In 1953 the agency was reorganized to replace a patronage system with career, professional employees, and its name was changed to the Internal Revenue Service.

Only the IRS commissioner and chief counsel are selected by the president and confirmed by the Senate.

The IRS began using electronic filing systems in 1991 to reduce paper usage and decrease operating costs of the organization.

The IRS Restructuring and Reform Act of 1998 prompted the most dramatic reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.

The IRS launched the Electronic Installment Agreement in 2002 to give taxpayers the ability to pay their bills online. In 2006, this was renamed the Online Payment Agreement. In 2011, the IRS launched a mobile app. In 2013 the IRS and the Bureau of Fiscal Service launched a web application that allowed taxpayers to pay Federal taxes online.[3][4]

Cryptocurrency

The IRS treats bitcoin and similar digital assets as property, for taxation purposes. Employees paid in bitcoin or other cryptocurrencies are reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.[5]

On March 25, 2014, the IRS announced that for U.S. taxes, cryptocurrency would be treated like an asset such as property, rather than as a currency, citing its lack of status as legal tender in any governing jurisdiction.[6] The news was mostly met positively, as it meant not only did the IRS officially recognize bitcoin and, by extension, other cryptocurrencies as legal investments, but also that cryptocurrencies would now be able to benefit from the U.S. long-term capital gains rate, as well as other tax benefits.[7] Others rejoiced due to the implication that regulations on cryptocurrencies would increase; some had speculated that the instability of bitcoin and altcoin prices were due, in part at least, to a lack of regulation.[8]

In July 2019, the IRS sent out letters to more than 10,000 U.S. residents who had either traded digital currency and did not properly report their digital currency earnings on their taxes, or traded digital currencies and did not report them at all. The letters contained "educational" information, including notices of liability for fines or criminal charges for those who fail to report earnings from digital assets on their taxes.[9]

In October 2019, the IRS published a new document to provide guidance on how to pay taxes on cryptocurrency. It addressed a number of long-standing questions, providing clarification.[10]

For example, many owners of digital currencies created by hard forks on existing blockchains had long questioned how to pay taxes on them. The document said that if you are the owner of a digital asset created by a hard fork, that new digital asset's value is to be considered "an ordinary income equal to the fair market value of the new cryptocurrency when it is received." Another point of clarification was how to calculate the "cost basis" of a digital asset. According to the document, "cost basis should be calculated by summing up all the money spent to acquire the crypto, including fees, commissions and other acquisition costs in U.S. dollars.”[11]

Criticism

Although the guidelines provided clarification on some issues, some criticized the document. Jerry Brito, executive director at Coin Center, made a blog post saying that "third parties can now create tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.”[12] The new guidelines did not spell out that there would be any exemption for transactions made under a certain threshold, saying that "a payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property."[13] This means that small transactions should still be treated as a capital gain or loss for tax purposes. This means that everyday transactions made with digital assets, like buying a cup of coffee, must be tracked and reported, which some interpreted as discouragement from adopting digital assets as an alternative form of currency for everyday purchases.[14][15]

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References