Seattle-based cryptocurrency tax analysis firm ZenLedger has raised $3.35 million in a seed round after processing more than $1 billion crypto transactions. ZenLedger’s investors include Vestigo Venture, Castle Island Ventures, Gumi Cryptos, Unblock Ventures (Line Messenger), and Migration Capital.
Following the release of the first cryptocurrency tax guideline by the Internal Revenue Service (IRS) in five years in early October, the agency has ramped up efforts to verify the compliance of cryptocurrency investors with federal taxation policies regarding the emerging asset class. The IRS said:
“The IRS is aware that some taxpayers with virtual currency transactions may have failed to report income and pay the resulting tax or did not report their transactions properly. The IRS is actively addressing potential non-compliance in this area through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.”
Despite the perception of ambiguity surrounding cryptocurrency taxation policies, it has become significantly more important for investors to comply with existing regulations and the requirements of the IRS, creating demand for analytics companies.
More crypto investors are trying to be compliant
In an interview, ZenLedger CEO Pat Larsen told CryptoSlate that the noticeable increase in the number of investors relying on tax analysis firms like ZenLedger demonstrates that the IRS and SEC are moving towards stricter enforcement and that investors are trying to remain compliant. Larsen said:
“I know a lot of smart people are working on a lot of interesting projects in blockchain and crypto. I think the rapid growth in the number of investors using ZenLedger is a reflection of the fact that the IRS and SEC are stepping up enforcement. I also think that there are just a lot more people investing in crypto as a speculative asset that they hope appreciates in value (denominated in USD gains).”
While regulated cryptocurrency exchanges like Coinbase have introduced services to allow investors and traders to disclose taxable income with the IRS in the past year, the high level of volatility in the crypto market and various uncertainties like hard forks and airdrops can complicate the process.
U.S. still behind other major markets
In comparison to other major crypto markets like Japan that have clarified policies around crypto taxation, policies in the U.S. still remain complex for the average investor.
Larsen emphasized that the U.S. taxation policy on crypto needs improvement, especially on intricacies like forks and airdrops. Larsen said:
“The US taxation policy concerning crypto is still ambiguous and needs a lot of improvement. We certainly need a better answer for forks and airdrops- but also better governance and practices from the token issuers on that front.”
Although the IRS has clarified key aspects of cryptocurrency investment and the calculation of gains or losses from it, Brito said that the “language” used by the IRS could create confusion for investors for hard forks and airdrops.
For more information about ZenLedger, visit zenledger.io.
Disclosure: ZenLedger is an advertiser on CryptoSlate, but this is not a sponsored story.Posted In: Seattle, Cryptocurrency Taxes, Venture Capital