Bitcoin Tax Laws Are A Nightmare So People Ignore Them

One of the easiest ways to tell when a law doesn’t make sense is if people rarely follow it yet don’t face reasonable consequences. Such is the case with the convoluted way laws currently classify bitcoin. Tax regulation currently considers bitcoin property, like a house, instead of currency. This means bitcoin users would theoretically need to report every use to the Internal Revenue Service, even something as simple as buying an Xbox game on Microsoft’s website, which accepts bitcoin.

A survey of 564 American bitcoin users by the online loan marketplace LendEDU, revealed more than 35 percent didn’t plan to report bitcoin-related gains or losses on their tax returns. On average, respondents said the current fiat value of their bitcoin holdings were $2,930.85, although that will probably continue to rise along with bitcoin’s market price.

The IRS is trying to crack down on bitcoin users by auditing companies such as the popular exchange platform Coinbase. However, so far the auditing process has proved how little the agency understands about this technology, demanding personal account information that experts say isn’t relevant for tax purposes.

In September, Democratic Rep. Jared Polis and Republican Rep. David Schweikert introduced a tax reform bill called the Cryptocurrency Tax Fairness Act of 2017, to reform the policy so cryptocurrency users would only need to account for transactions worth $600 or more. The majority of lawmakers aren’t moving too quickly to prioritize issues related to virtual currency. So, according to the nonprofit Coin Center, the bill has now been offered as an amendment to the H.R.1 Tax Cuts and Jobs Act, which the Trump administration cares deeply about.

Even if this amendment passes, there are still a slew of other practical issues lawmakers need to tackle for cryptocurrency users to include blockchain-based assets in their taxes. For example, when the bitcoin network forks there is often an “air drop” where users automatically receive new tokens such as Bitcoin Cash. The bitcoin user may not even want BCH. But whether they sell it off or leave it alone, they are still legally liable to report it.

“From the IRS’s perspective, whenever you get something new you didn’t have before, it’s accretive—it’s income,” Elizabeth Crouse, a digital currency expert at K&L Gates law firm, told Fortune. “When the Bitcoin Cash shows up in someone’s account, they have a taxable interest. The question is what’s it worth.” Calculating its worth is quite tricky and might require professional guidance to make an educated guess, because there is no clear guideline for how to handle unique circumstances involving virtual currency.

Coinbase won’t even release BCH to its customers until January, meaning millions of bitcoin users are legally required to report income they haven’t received and can’t sell off with scant certainty about how to report it correctly. It’s worth noting around 64 percent of LendEDU survey respondents said they do plan to report some kinds of “gains or losses” related to bitcoin in their tax returns. The majority are trying to follow American tax laws, even if they’re not sure how to do it right.