Final Thoughts From the Taxpayer Advocate's Report to Congress

• Published date: 01 January 2015
• Author: Caroline D. Strobel
• DOI: http://doi.org/10.1002/jcaf.22024
• Date: 01 January 2015

79

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22024

IRS

D

e

p

a

r

t

m

e

n

t

s

Caroline D. Strobel

Final Thoughts From the Taxpayer

Advocate’s Report to Congress

DIGITAL CURRENCY

The use of digital currency such

as Bitcoin is growing. In the

four months between July and

December 2013, Bitcoin usage

increased by over 75%—from

about 1,700 transactions per

hour to over 3,000. Over the

same period, the market value of

bitcoins in circulation increased

more than 10-fold, from about

$1.1 billion to $12.6 billion. The

IRS has yet to issue specific

guidance addressing the tax

treatment or reporting require-

ments applicable to digital cur-

rency transactions. Taxpayers

who are trying to comply with

the law are complaining about

the uncertainty regarding the

rules for reporting these transac-

tions.

The National Taxpayer

Advocate lists the following

unanswered questions:

• When will receiving or

using digital currency trig-

ger gains and losses?

• Will these gains and losses

be taxed as ordinary

income or capital gains?

• What information reporting,

withholding, backup with-

holding, and record-keeping

requirements apply to digital

currency transactions?

• When should digital cur-

rency holdings be reported

on a Report of Foreign

Bank and Financial

Accounts (FBAR), and/or

Form 8938, Statement of

Specified Foreign Financial

Assets?

The Taxpayer Advocate

recommends that guidance be

issued to deal with digital cur-

rency transactions including

answers to the preceding ques-

tions.

THE DEFENSE OF MARRIAGE

ACT

Because of the difference

between federal and state law,

same-sex spouses may have

to file tax returns as single at

one level but as married at the

other. Before U.S. v. Windsor,

spouses whose state recognized

their marriage would file singly

for federal but jointly for state

tax purposes. After Windsor,

spouses whose state does not

recognize their marriage need

to file as married with the IRS

while continuing to file singly

with the state. IRS systems

for processing amended and

new returns hold potential for

rejecting unusual but legitimate

claims, putting these returns

in the limbo of refund fraud

processes. Meanwhile, same-

sex partners in three states that

ban same-sex marriage but

allow domestic partnerships or

civil unions still need answers

to questions like the following:

Is alimony after dissolution of

a civil union includible by the

recipient and deductible by the

payer? Is community property

created upon partnering with an

individual of the same sex a tax-

able gift?

The IRS should issue for-

mal and informal guidance for

same-sex spouses to resolve

questions that continue to arise,

for same- and opposite-sex part-

ners who have marital attributes

under civil union or similar state

law, and for IRS employees to

promptly process the returns

and related claims. The IRS

should review identity theft and

revenue protection filters in light

of common filing scenarios

by same-sex spouses so the

IRS does not freeze and delay

refunds of legitimately married

taxpayers.

ALTERNATIVE MINIMUM TAX

The Taxpayer Advocate

finds that the alternative mini-

mum tax (AMT) does not meet

its goal of requiring wealthy