Rory Rawlings is the Chief Tax Automation Officer at Avalara Inc. since March 2005, having co-founded the company in 1999 and previously served as its President. With a background as an Accountant and CPA, he possesses extensive expertise in financial planning, business planning, profit analysis, and tax research. Transitioning into Information Technology, he held roles at Boeing, PowerCerv, and PhotoDisc, where he directed IT operations, spearheaded enterprise architecture, and implemented ERP systems. At BDO Seidman, he served as Senior Manager of Packaged Solutions, overseeing system selection and implementation. Mr. Rawlings is certified as a PowerBuilder Developer and Instructor in Object Oriented Analysis and Design (OOAD), showcasing his proficiency in software development and strategic planning.
Episode Highlights Here:
Rory
The IRS has long targeted crypto as a significant source of unreported income. So with President Biden’s infrastructure act of 2021, brokers must report customer gains and losses to the IRS annually.
Brett
So based upon your research and everything that’s happening in the space, what would you say is the number one thing that people need to know right now regarding the 1099 days and about the IRS coming for crypto?
Rory
Well, first of all, who’s on the hook? So the IRS has a broad definition of digital asset brokers. So that encompasses centralized exchanges, decentralized exchanges, such as Coinbase and uniswap. digital wallets, such as Metamask payment processors, such as quantify, and even Bitcoin ATMs. If you’re in a position to know the nitty gritty of transactions. Congratulations, you’re a broker, and now you have reporting duties. So why is this happening? The IRS has long targeted crypto as a significant source of unreported income. So with President Biden’s infrastructure act of 2021, brokers must report customer gains and losses to the IRS annually.
Brett
Okay, so how has this changed from what it was before when it’s important to understand, right, you see, I mentioned some of the players their understanding of where we’re moving is moving. But talking about I guess what it was before maybe just break down an example of transaction and movement of funds. And then now what does this mean?
Rory
That’s a great, great question. Because say, for example, if you were trading either on a kraken or Coinbase, in the past, they would have submitted a 1099 Miss, or some other type of a 1099, that reporting primarily just gross proceeds. So for example, if you’ve dealt with stocks, you’re familiar with a 1099 b. So with the form 10, the new form 1099, D, A, for digital assets, it will cover very similar grounds. So we’ll cover the acquisition dates, the cost basis, disposition dates, and the sales proceeds. But most importantly, it also reports the gross proceeds, which is essentially the total transaction volume, regardless of the gains and losses. This is a real problem. And a point of contention and confusion, and over reporting in the past was similar forms. So it’s crucial to keep an eye on this.
Brett
Okay, so I’m hearing you right, it sounds like this gross proceeds part is kind of the crux of this, right? Because maybe it’s confusing for the person who’s trying to report properly. And what can be determined, I guess, is to walk through an example of what that would look like and the proper way to do it and what the common mistake could be.
Rory
That’s great, that’s, that’s great. Because one of the ones I think the biggest issue is, is it in the digital asset realm, most people are well, it’s all about self custody. Digital Asset brokers need to share cost basis information with each other. There’s a massive shift in the crypto space which values privacy and self custody and decentralization. Which means that because it’s self custody, not a not every area the brokers don’t necessarily know, they don’t know what the basis is. So missing or incorrect information can lead to complications, meaning that you need to calculate your crypto tax bases on time and accurately. So accuracy is not the only consideration for crypto taxation, believe it or not, scalability to handle the load during crunch time of tax season, is the Achilles heel for most crypto tax solutions.
Brett
Okay, so let’s walk through this right, so I bought some Aetherium on Kraken and Coinbase. And perhaps even bought it a couple years ago, and, and, you know, things have gone up, things have gone down. And in the meantime, I’ve been doing the 1099 miscellaneous, right, I mean, just what they just provide for us, and then you send it in to your tax preparer. Now this is going to be hands on for the consumer and or confusion for the consumer, or the investor, I guess is the way you would put it, is that a fair summary? That’s
Rory
a very fair summary. And really the way to get out of that confusion is to work with a sales tax solution, an accurate sales tax solution that can go back and work with you to identify when those assets were acquired. And to calculate what the basis is so that you can act accurately on your tax return. Got it?
Brett
That makes sense right. So essentially, it’s having someone like you guys, right blue Canary capital ball calm, to be able to help everybody properly A find the bases and properly reported on the 1099 da so that no one’s getting in tax tax trouble
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About Rory Rawlings
Rory Rawlings has been the Chief Tax Automation Officer of Avalara Inc., since March 2005. Mr. Rawlings Co-founded Avalara Inc., in 1999 and served as its President. In his early career as an Accountant and CPA, he gained extensive experience with financial planning, business planning, profit analysis, and tax research. Mr. Rawlings worked into a career in Information Technology at Boeing writing custom applications and then with PowerCerv (ERP Company for mid market) as a Senior Software Developer and Director of Professional Services for the West Region. Mr. Rawlings then worked for PhotoDisc (now Getty Images) as the Director of IT. He spear-headed Enterprise architecture and business planning, as well as completed an implementation and customization of an ERP system. He architected several sales tax engines which included full lifecycle design, development and implementation. He then joined BDO Seidman as the Senior Manager of Packaged Solutions where he was responsible for system selection and implementation. He has designed and developed a data warehousing and reporting application integrated with Scala and Crystal Reports with incorporated repository, multi-language capabilities and financial report structures in the database design. He was certified as a PowerBuilder Developer and Instructor in Object Oriented Analysis and Design (OOAD).
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