Recent IRS guidance on cryptoassets.

• Author: Reyes, Denise

The global cryptoasset market capitalization is currently approximately $2.75 trillion,and this figure is speculated to grow as cryptoassets become more widely adopted. The IRS has released limited guidance to date on the tax consequences of cryptoasset transactions, and many issues currently remain unaddressed. Many of these matters will no doubt be clarified in the future. In the meantime, this item summarizes IRS guidance on cryptoassets, including the latest releases from the Service.

It should be noted that Congress included certain cryptoasset provisions in the

Infrastructure Investment and Jobs Act, P.L. 117-58, enacted in November 2021. Under the legislation, an information return (Form 1099-B, Proceeds From Broker and Barter Exchange Transactions) must be filed with the IRS by a party facilitating the transfer of cryptocurrency on behalf of another person as a broker (Sec. 6045(c)(1)(D)). The legislation also requires a business that receives cryptocurrency worth more than $10,000 in a single transaction to report the transaction to the IRS on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business (Sec. 6050I). These new information reporting requirements will apply to returns required to be filed, and statements required to be furnished, beginning in 2024.

The discussion below focuses on cryptoasset guidance issued to date by the IRS.

Background

According to the IRS's definition, virtual currency (the term the IRS generally uses for cryptoassets) is a digital representation of value that is not a representation of U.S. or foreign currency and that functions as a medium of exchange. Convertible virtual currency is virtual currency that has an equivalent value in real currency or acts as a substitute for real currency. Bitcoin, which was introduced in 2009, is commonly recognized as the first convertible virtual currency. IRS guidance on convertible virtual currencies was not released until 2014.

In 2014, the IRS issued Notice 2014-21, which adopts the principle that, for federal income tax purposes, virtual currency is not currency and is treated as property. The notice, in the form of 16 FAQs, outlined how to compute the basis of virtual currency and how to determine the character of the gain or loss. It also alerted taxpayers of penalties they could be subject to for failure to comply with the tax laws.

In 2019, the IRS expanded on guidance from 2014 and released Rev. Rul. 2019-24 and additional FAQs to...