The United States Internal Revenue Agency is prepared to seize the holdings of cryptocurrency owners who are struggling to pay their unpaid tax debts, sending a strong signal that the agency is treating digital assets the same as any other type of property that can be confiscated.
Robert Wearing, deputy associate chief counsel for the IRS, told a virtual conference held by the American Bar Association that the government classifies digital assets as property. As such, these assets may be confiscated to satisfy outstanding tax debt that hasn’t been repaid.
“The IRS will seize that property and will attempt to follow its usual procedures to sell it and use it to satisfy collection,” Wearing said, according to Bloomberg.
Bitcoin and other cryptocurrencies are classified as property from the perspective of federal tax law, according to a 2014 notice published by the IRS. The agency explained:
“Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.”
Although the IRS has been able to obtain data on cryptocurrency users via exchanges like Coinbase and Kraken, proving ownership becomes much harder when the assets are stored in hardware wallets.
In addition to scalability issues, the tax implications of digital assets may be one reason that Bitcoin has yet to take off as a robust medium of exchange. That’s because every time BTC is converted to cash, it’s technically a taxable event in the eyes of the IRS and many other tax agencies around the world.
Crypto investors have been able to skirt taxes legally by borrowing against their holdings — something that MicroStrategy CEO Michael Saylor strongly advises. Platforms like BlockFI, Celsius and others allow users to obtain collateralized loans on their digitalasset holdings.