Recently cryptocurrency has been a topic of much discussion across numerous fields. For example, the Securities and Exchange Commission is now investigating certain cryptocurrency offerings. Meanwhile Uber’s co-founder Garrett Camp wants to create his own global cryptocurrency. Cryptocurrency is even being discussed in the tax field.
Two states, Arizona and Georgia, have proposed bills that would allow the states to accept cryptocurrency as a method of payment for yearly taxes.
Georgia’s bill states that it will “‘accept as valid payment for taxes and license fees any cryptocurrency, including but not limited to bitcoin,’ then convert it to dollars within 24 hours.”
There are at least three problems that surface immediately when thinking about this proposal. First, there is the problem that with conversion rates it will be difficult to pay the exact sum of money to the state, resulting in complicated credit and refund systems that need to be set up for public use. Second, Arizona and Georgia have to be prepared to accept and process over “1,522 different cryptocurrencies available for peer-to-peer trading, including 10 that were created in the past week alone.” The third problem, and perhaps the most concerning, is the ability to evade taxes with cryptocurrency. Tax evasion is a current concern with cryptocurrency for the United States, according to Christopher Giancarlo (“Giancarlo”), the Commodity Futures Trading Commission’s (“CFTC”) Chair. Giancarlo did however state that he has no “hard data” to confirm his suspicions on cryptocurrencies tax evasion involvement. As a side note, Giancarlo specified that despite no current calls for regulation, cryptocurrency regulation is on the CFTC’s agenda.
This lack of regulation should raise red flags for Arizona and Georgia. The lack of regulation was one reason criminals found the currency so attractive in the past. The very same lack of regulation could make it difficult for lawyers operating in the field to provide guidance to clients regarding if they should use this method to pay their taxes or not. In terms of a benefits analysis, the new payment method would be secure, however, clients could risk being the guinea pig for this new law, and potentially, the scapegoat later on if something goes awry. What further makes the issue so difficult for lawyers to advise on is that there are several debated loopholes with cryptocurrency that blur the line between legal, risky, and illegal. One massive loophole in cryptocurrency was only recently closed at the end of 2017, despite cryptocurrency having been around for over seven years now.
Aside from a lack of regulation, accepting cryptocurrency would lead to a vast uncharted territory full of additional potential problems. One potential problem would be hacking, which seems to be prevalent in the past year. Once cryptocurrency is hacked and stolen there is no recovering it. Another potential problem would be breach protocols. Do Arizona and Georgia have effective breach protocols to account for the increasing breach litigation being seen recently? These two potential problems are just a small sample of the concerns that lawyers will have to contend with if the bills in Georgia and Arizona are passed.
Time will tell if Arizona and Georgia have made an innovative decision or a costly one.