Tax Reporting of Bitcoin and Other Cryptocurrency: Calculating Basis, Income and Gain

Determining Character of Gain and Basis in Mined Currency, Recognizing Filing Obligations and Prior Noncompliance

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, June 26, 2018

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers and compliance professionals with a practical look at IRS guidance to calculating and reporting income and gain on cryptocurrency (e.g. Bitcoin, Coinbase) transactions. The panel will discuss the IRS’ position on cryptocurrency as property rather than cash, analyze IRS monitoring to increase compliance, and define proper reporting and tax treatment for “mining” and exchanging cryptocurrency.

Description

The IRS continues to press its concern over what it terms “massive under-reporting” of income arising from cryptocurrency transactions. The recent disclosure of information gained from enforcement of the “John Doe” summons issued to Coinbase showed the likely noncompliance rate by cryptocurrency investors could be as high as 90%. Tax advisers for clients with cryptocurrency holdings must understand the reporting requirements for exchange transactions and the IRS scrutiny cryptocurrency investors are likely to face in the future.

Cryptocurrency is digital currency using encryption techniques—rather than a central bank—to generate, exchange and transfer units of currency. Uniquely, no bank or government authority verifies the transfer of funds. Investors may use “mining operations,” purchase, receive payment, or transfer crypto units to and from another user.

The default IRS position treats all virtual currency as property, rather than currency, for U.S. tax purposes. Any transaction involving cryptocurrency must be reported as a sale or exchange of property, with the taxpayer bearing responsibility for calculating and maintaining basis in their virtual currency holdings.

Treasury left several questions unanswered, including whether cryptocurrency is business property eligible for tax-free exchange under §1031 and whether cryptocurrency is required to be reported on Foreign Bank Account Reports (FBARs) or other foreign asset disclosure forms such as Form 8938.

Listen as our panel of experts provides practical guidance on the U.S. tax reporting and payment duties arising from cryptocurrency transactions.

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Outline

  1. Types of cryptocurrency
  2. Means of obtaining cryptocurrency
  3. Initial tax guidance issued in IR 2014-36 treating cryptocurrency as property
    1. Challenges in determining valuation and maintaining basis schedules of virtual currency holdings
    2. Tax reporting requirements for cryptocurrency exchanges
    3. Disclosure requirements for cryptocurrency ownership
  4. Open questions on tax treatment of virtual currency holdings and transactions
    1. Foreign information reporting requirements uncertain
    2. Eligibility for §1031 exchange treatment as business property
  5. Reporting payments to employees and contractors
  6. Voluntary remedies to noncompliance

Benefits

The panel will review these and other key issues:

  • Limitations on loss recognition on cryptocurrency transactions and exchanges
  • Income tax reporting requirements for cryptocurrency exchanges and valuations
  • IRS’ position on whether cryptocurrency exchanges qualify for §1031 treatment, and the impact of the newly enacted tax reform
  • Challenges in determining basis on “mined” cryptocurrency
  • How to use the IRS voluntary disclosure policy to get into compliance and the availability of “qualified amended returns” to avoid penalties

Faculty

Stein, Michel
Michel R. Stein

Principal
Hochman Salkin Rettig Toscher & Perez

Mr. Stein specializes in tax controversies, as well as tax planning for individuals, businesses and corporations. For...  |  Read More

Toscher, Steven
Steven Toscher

Principal
Hochman Salkin Rettig Toscher & Perez

Mr. Toscher has been representing clients for more than 35 years before the IRS, the Tax Divisions of the U.S....  |  Read More

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