Since the emergence of cryptocurrencies, financial regulators in various countries are in a dilemma concerning the legal framework surrounding these virtual currencies. Five members of the House of Representatives urged the IRS on Wednesday to furnish updated guidelines on how taxpayers should record profits associated with investing in bitcoin and other cryptocurrency assets.

The letter published on the website of the House Ways and Means Committee — the chief tax-writing committee — was addressed to Acting Commissioner David Kautter and called on the IRS to devise a more detailed cryptocurrency tax scheme than the one it currently enforces.

The legislators referred to a previously drafted letter that was sent to the IRS in May. 17, 2017. With the same request, more than a year later, the IRS has done little for issuing any guidance to the taxpayers, the Congressmen said.

“The IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers. We, therefore, write again today to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies,” the letter reads.

It goes on to explain that, since the inception of cryptocurrencies, the IRS has “struggled” to form a taxation plan to fit cryptocurrencies. Multiple organizations, including the Association of International Certified Professional Accountants, the American Bar Association, and the Treasury Inspector General for Tax Administration to the IRS, have raised similar concerns — “to develop a comprehensive virtual currency tax strategy.”

The letter noted the tax agency said in 2014 that cryptocurrencies would be taxed as property. The IRS Commissioner had responded to the May 2017 letter, describing the 2014 notice as “preliminary guidance,” prompting the lawmakers to claim that “to date, the IRS has not issued any additional guidance that taxpayers may rely upon to better understand their tax obligations.” In 2014 bitcoin was trading at a fraction of its current value and many other coins present in the market today — over 1,200 — had not yet been created.

Internal Revenue Service A group of legislators has asked the Internal Revenue Service to provide clearer cryptocurrency tax code. Here, a general view of the IRS building in Washington, D.C., May 27, 2015. Photo: REUTERS/Jonathan Ernst

Saying that despite lack of a clear strategy, the letter says "the IRS has made enforcement of this guidance a priority, undertaking robust enforcement actions on a number of fronts." In 2016, the agency summoned Coinbase to collect information on nearly half a million Americans who held virtual currencies from 2013 to 2015. In addition, it started a campaign in July to target those who had not complied with its orders.

In conclusion, the letter states failure by the IRS to put forth proper guidance would “severely hinders taxpayers'' ability to comply. It calls for “the IRS to expeditiously issue more robust guidance clarifying taxpayer obligations,” arguing that the agency has had four years to work through the issues since its preliminary guidance was issued.

At the end of the letter, the legislators requested the IRS to provide the committee additional information by October. They also said the committee would request the Government Accountability Office to examine the situation.