After the members of the US Congress sent a letter to the Internal Revenue Service (IRS) on the agency’s ongoing tussle with digital currency exchange Coinbase, co-chairs of the Blockchain Caucus have also sent a letter to the IRS.

In the letter, Rep. Jared Polis, D-Colo., and Rep. David Schweikert, R-Ariz have requested additional guidance on the tax consequences and basic tax reporting requirements for transactions involving virtual currencies such as Bitcoin and Ethereum.

“Over the past few years, it’s become clear that digital currencies are increasing in popularity and we need to ensure that the IRS clarifies how to properly tax these forms of transactions,” Polis said. “I look forward to hearing from Commissioner Koskinen and receiving clear-cut guidance for how digital currency users report their taxable income.”

“As this technology develops regulatory certainty is needed. We look forward to engagement as we build a framework for blockchain and virtual currency technology," Schweikert said.

The co-chairs noted that while the IRS has been involved with virtual currencies and tax compliance since 2007, they have failed to provide clarification about how consumers should comply with IRS tax guidance. In 2016, the Treasury Inspector General for Tax Administration (TIGTA) reviewed IRS’ strategy for addressing income produced through virtual currencies and identified three issues where it would be helpful for the IRS to provide additional tax guidance.

The TIGTA recommended that IRS should revise third-party information reporting documents to identify the amounts of virtual currency used in taxation transactions.

“We encourage the IRS to consider the recommendations of the TIGTA and take action based on those recommendations to increase taxpayer compliance with Notice 2014–21. Further, we encourage the IRS to engage with virtual currency exchanges to better understand their ability to engage in information reporting, including recordkeeping to track realized gain or loss and identify the amounts of virtual currency used in taxable transactions”, the letter added.

Jerry Brito, Executive Director of Coin Center, welcomed the effort by Rep. Polis and Rep. Schweikert on this issue, while noting that if taxpayers and digital currency exchanges don't have clear guidance and easy ways to report taxes owed, innovation in this emerging sector will suffer.

“We look forward to continuing to work with Mr. Polis and Mr. Schweikert on these and other questions related to taxation of digital currencies”, he added.