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

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

Note: CLE credit is not offered on this program

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

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Conducted on Thursday, January 20, 2022

Recorded event now available

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Course Materials

This course 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 compliance monitoring, and define proper reporting and tax treatment for "mining" and exchanging cryptocurrency.

Description

The IRS continues to press its concern over "massive under-reporting" of income from cryptocurrency transactions. The disclosure of information gained from enforcement of a John Doe summons issued to Coinbase showed that cryptocurrency investors' likely noncompliance rate could be as high as 90 percent. 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 a digital currency using encryption techniques--rather than a central bank--to generate, exchange, and transfer currency units. 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 IRS treats all virtual currency as property rather than currency for U.S. tax purposes. The IRS requires reporting any transaction involving cryptocurrency as a sale or exchange of property, with the taxpayer bearing responsibility for calculating and maintaining basis in their virtual currency holdings. Although cryptocurrency is property, it is not real property and therefore is not eligible for Section 1031 treatment.

Questions remain unanswered concerning how to treat cryptocurrencies on foreign bank account reports (FBARs) and other foreign asset disclosure forms such as Form 8938.

Listen as our expert panel 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. Revenue ruling 2019-24, hard forks and air drops
  5. Questions on the tax treatment of virtual currency holdings and transactions
  6. Proposed legislation affecting cryptocurrency
  7. Reporting payments to employees and contractors
  8. Voluntary remedies to noncompliance

Benefits

The panel will review these and other relevant 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 enacted tax reform
  • Challenges in determining the basis on mined cryptocurrency
  • How to properly account for hard forks as outlined in Revenue Ruling 2019-24

Faculty

Stein, Michel
Michel R. Stein

Principal
Hochman Salkin Toscher Perez

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

Brown, Sandra
Sandra R. Brown

Principal
Hochman Salkin Toscher Perez

Ms. Brown’s practice focuses on individuals and organizations who are involved in criminal tax investigations,...  |  Read More

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