Cryptocurrency: The Saga Continues!

PC: Plitvice Lakes, Croatia
Cryptocurrency discussions are every where these days cropping up like the ubiquitous dandelions. There is a lot of information out there and it can be quite over-whelming to say the least. Some of the information is downright inaccurate and one needs to be careful about the sources that dish it out. We talked about Cryptocurrency briefly in our blog-post here. Not much has changed since then. 

What has changed however is that an increasing number of tax professionals are asking the Internal Revenue Service for guidance surrounding taxation of Cryptocurrency. In fact the American Institute of Certified Public Accountants {AICPA} recently wrote to the Internal Revenue Service recommending that the IRS address certain issues with Cryptocurrency by way of guidance or FAQ's. 

Some of the major recommended areas the AICPA asked for comments/ guidance from the Internal Revenue Service on were: Expenses of obtaining the currency; Acceptable valuation and documentation; Computations for gains and losses; Virtual currency events, and held and used by dealers; Treatment under Sections 1031 and 453; Holding Virtual currency in Retirement Accounts; Foreign Reporting Requirements. 

One of the recommended topics that I personally thought was most relevant was that the Cryptocurrency Miners/ Users be allowed to make a De Minimis Election for cryptocurrency transactions. At this time every payment in Cryptocurrency is deemed a sale of the currency and hence each of those events needs to be kept track of and reported as a Capital Gain/ Loss on the tax return. Tracking these transactions can be onerous, hence the recommendation for a de minimis exclusion. 

If cryptocurrencies are traded on exchanges located outside the United States and if accounts are held within these exchanges, there is currently no guidance whether the FATCA regulations apply and if these balances in the exchanges have to be reported on an FBAR. 

A Like-Kind-Exchange via Section 1031 has been effectively removed for Cryptocurrencies by the Tax Reform Act. After Tax Year 2017, this will no longer be available as a tax strategy for cryptocurrencies.

The loss of this deduction may not help those who had exchanged one type of cryptocurrency for another within an exchange.  

This past tax season was an eye-opener for me to see how many younger clients came to their appointments with questions regarding cryptocurrency or that they had bought and sold some of it for a neat profit. I will tell you what I told them, be wary, stay informed and make sure you take your tax professional into confidence. 

If this is the first time you are reading up on cryptocurrency and most/ all of the above seemed like Greek to you, first of all let me welcome you to the "Fourth Industrial Revolution" and then provide you with a link to a really good write up on Mining of Cryptocurrency here

Bibliography: AICPA Comment Letter Dated May 30th, 2018; Notice 2014-21

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,  


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