Silver Combines Taxpayer Choice and Regulatory Treatment for Cryptocurrency Cost Basis

Developments in blockchain and cryptocurrencies continue at a relentless pace and are increasingly drawing the attention of regulators. While competing opinions have emerged as various regulators have viewed cryptocurrencies, ICOs, and tokens through their own lenses, global tax authorities including the IRS and the HMRC in the United Kingdom have issued informal guidance that brings many aspects of cryptocurrency activity under established taxation rules. Other aspects remain uncertain, however, and until formal regulations are issued to remove uncertainties, taxpayers have several choices as to how and when to report various cryptocurrency related events such as coin/coin trades, hard forks, and token exchanges.

"We have implemented our cryptocurrency cost basis processing to apply regulatory treatment where the rules are clear but permit account holders to choose their desired treatment where the rules are unclear," says Neal Ruskin, Silver's Managing Partner responsible for product strategy. With new regulation likely forthcoming, cryptocurrency firms and service providers must be ready to support new rules via retroactive correction or via prospective application that retains choice prior to a given effective date while applying regulatory treatment from that date forward. Mr. Ruskin continues, "Our system does this today in response to Sec 1031 changes introduced by last year's Tax Cuts and Jobs Act -- account holders can choose taxable or like-kind treatment for coin/coin trades prior to 2018, while trades in 2018 and later are processed taxably regardless of their choice."

Silver's multi-currency cost basis processing engine is fully compliant with all rules stemming from the broker cost basis reporting statutes and regulations. Silver's cryptocurrency processing leverages many of these existing production-proven capabilities, including simultaneous adjustment of coin and non-base-fiat tax lots with automatic generation of linked foreign exchange (FX) transactions and independent disposal methods or specific lot instructions for both legs, covered/noncovered determination, automatic carryover of tax lots for internal transfers, manual import/export of tax lot details for external transfers, inheritance step-ups, gift dual-basis treatment, and wash sales should the Sec 1091 rules ultimately be imposed on cryptocurrency trading. Ruskin adds that "blockchain browsing is insufficient for cryptocurrency cost basis, both due to the increasing prevalence of off-chain activity and the fact that neither the counterparty roles nor transaction context necessary for accurate tax characterization is available. As a leading provider of enterprise-scale regulatory securities cost basis processing, Silver is uniquely positioned to offer cryptocurrency cost basis processing that addresses the significant record-keeping burden imposed on taxpayers today and the inevitable information reporting requirements to be imposed on exchanges and others tomorrow. Ongoing discussions with several prominent cryptocurrency platforms have confirmed the need for taxpayer choice now and regulatory treatment in the very near future."

About Silver Management Group, Inc.

Silver is a leading provider of business and technology solutions for the investment services industry. The Silver team applies decades of securities industry and software development experience, along with a passion for solving real-world problems, to deliver cost-effective brokerage operations and wealth management solutions for our clients. Silver's strategic partners provide complementary services, software, and market data to enhance Silver solutions. Silver's proprietary software solutions are currently used by some of the world's most respected financial institutions to process tens of millions of investment accounts and trillions in assets.

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Source: Silver Management Group Inc.


Categories: Compliance and Regulations, Cryptocurrency

Tags: Bitcoin, CBOE Futures Exchange, Chicago Mercantile Exchange, compliance, cryptocurrency, digital currency, Ethereum, regulations, regulatory, Ripple, virtual currency


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Silver is a leading provider of business and technology solutions for the investment services industry.

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