Still waiting on crypto

It’s been a while since we heard from the IRS on cryptocurrency. And it may be a while longer.

The IRS hopes to release some new guidance, an agency official said at the crypto confab Consensus 2023 last week, according to the trade publication CoinDesk. But the official did not specify when it would be out or how long it will take to get final regulations.

The issue is pressing, considering that the IRS brass has said that cryptocurrency is contributing a good bit to the U.S.’s massive tax gap — the difference between what it’s owed and what it’s actually paid. But it’s also very complex and controversial.

People in the crypto world and some lawmakers have long complained that the IRS has provided very little clarity over tax rules for the industry and virtual currency holders.

In 2021, Congress passed legislation requiring cryptocurrency brokers to report transactions involving digital assets to the IRS starting in 2023, much like brokers have to report purchases and sales of stock and securities. Companies would have to start some tracking and reporting of crypto sales.

New laws also subject digital assets to basis reporting, which would allow the IRS to determine how much taxpayers made on a crypto trade and therefore owe in taxes.

But the IRS said in late 2022 that implementation of all those laws would be delayed until it publishes proposed regulations and solicits comments. It didn’t provide a timeline.

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The presence of Julie Foerster, the IRS project director for digital assets, at Consensus 2023 appeared to be something of a listening and get-to-know-you session.

“We are engaging with you all so we get it right and build a plan,” she said, according to CoinDesk.

She “highlighted that the landscape for digital assets is an evolving one, and emphasized a need to increase communications between the agency and the crypto community.”

Foerster also said the IRS “needs to look at the skills of the people we have today and those we will bring on in the future,” CoinDesk reported. “We need to have the right tools and the right people.”

The strategic plan the IRS released last month for its $80 billion in new funding includes hiring more experts to deal with digital assets and developing “New analytics-enabled capabilities … to support digital asset compliance, a “milestone” it set for fiscal year 2024. It also plans to have its “Information Returns platform enhanced to support digital asset reporting” during FY 2024.

AI REPORT CARD: There’s been plenty of chatter lately about how artificial intelligence might affect the tax world, for good or ill. As our Benjamin Guggenheim reported in this space last month, one expert found that the buzzy bot ChatGPT did a pretty good job when asked to cook up tax scams. On the flipside, the IRS is using AI to catch tax cheats and improve customer service.

It’s the same in the accounting industry — some see it as a threat to their livelihood, others as a powerful tool they can put to work. (Even ChatGPT has its own opinion about that, according to Accounting Today.)

Now, Brigham Young University is out with a report measuring how well ChatGPT would do on accounting exams. The massive, crowd-sourced project involved 186 universities in 14 countries, which contributed a total of 25,181 exam questions and 2,268 textbook test questions.

Comparing the bot’s performance to that of human students, the researchers found the students won, hands down, with an overall average score of 76.7% compared to 47.4% for ChatGPT. Among the bot’s worst subjects: taxes.

“On 11.3% of questions, ChatGPT scored higher than the student average, doing particularly well on AIS and auditing. But the AI bot did worse on tax, financial, and managerial assessments, possibly because ChatGPT struggled with the mathematical processes required for the latter type,” a summary of the study said.

One caveat: The researchers used the original version of ChatGPT, not the newest product, GPT-4.

The report’s authors “fully expect GPT-4 to improve exponentially on the accounting questions posed in their study” and the issues the bot stumbled over, according to the summary. “What they find most promising is how the chatbot can help improve teaching and learning, including the ability to design and test assignments, or perhaps be used for drafting portions of a project.”

Around the World

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The Guardian: King Charles urged to push for breakup of UK’s ‘network of satellite tax havens’

Reuters: Brazil’s Lula pledges new minimum wage policy, expanded tax exemption

Bitcoin: Report: Kenya to Start Levying Tax on Revenue Earned by Crypto Exchanges

Around the Nation

The Oregonian: Oregon dreams of semiconductor factories, but land and tax breaks are going to data centers instead

WPDH: New York State Sets the Highest Cigarette Tax in the Country

Portland Press Herald: Maine cities, towns face historic tax increases as costs rise relentlessly

Hawaii News Now: ‘We’re just elated’: Anti-vaping advocates win nine-year battle to tax vape products similar to tobacco

Also Worth Your Time

Accounting Today: A better tax season for just about everyone

Did you know?

HAL 9000, the mutinous AI computer in “2001: A Space Odyssey,” was built at the fictitious HAL Laboratories in Urbana, Ill. The reference was inspired by the very real Coordinated Science Laboratory at the University of Illinois, where some of the first supercomputers were built.

CORRECTION: An earlier version of this newsletter incorrectly reported that the IRS official put a time frame on when new cryptocurrency guidance would be issued.

CORRECTION: An earlier version of this newsletter misidentified a crypto trade publication.