The US Internal Revenue Service needs to overhaul its strategy for bitcoin and other digital currencies, the agency’s inspector general (IG) warned in a report released today.

Originally prepared by the Treasury Inspector General for Tax Administration (TIGTA) in September, the report casts a gloomy portrait of the US tax agency’s efforts to oversee and tax digital currency transactions.

According to the TIGTA, there is “little evidence” that US tax officials have moved to create a broader, more cohesive strategy in the two-and-a-half years since the agency declared its intention to tax bitcoin as a kind of property. Other issues include a lack of controls for third-party tools used to report transactions.

A continued failure to address the concerns means that the IRS is at risk of missing taxpayer violations, the report warned.

The IG wrote:

“The IRS needs to ensure that it develops a strategic plan that includes management oversight as well as adequate internal controls for its virtual currency programs. Until a comprehensive virtual currency strategy is developed, the IRS is open to the risk that undetected noncompliance of virtual currency taxable transactions will result in an increase to the Tax Gap.”

Compounding the current state of affairs, the report goes on to outline, is the fact that the agency failed to respond to or otherwise adopt proposals made via public comment after the 2014 policy release.

The IRS has faced criticism in the past from tax professionals, who argued that the agency hadn’t provided consumers with enough information regarding the taxation of bitcoin and other digital currencies. In its report, the IG acknowledged that the 2014 policy release was problematic regarding some of the reporting mandates, particularly relating to documentation.

“Due to the potential complexity of reporting otherwise simple retail purchase transactions related to virtual currencies, further guidance is needed to help taxpayers voluntarily comply with their tax obligations,” the IG said.

Yet the agency is committed to change. In the report, the IG said that the IRS had agreed to improve its existing bitcoin tax practices, with an eye to potentially rework how its reporting documents are structured.

In total, the TIGTA issued three recommendations, and in all cases, the IRS agreed with the findings.

The full report can be found below:

As the Use of Virtual Currencies in Taxable Transactions Becomes More Common, Additional Actions Are Needed… by CoinDesk on Scribd

Image Credit: Mark Van Scyoc / Shutterstock.com

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