by Mike Godfrey, Tax-News.com Washington
15 January 2020
The United States Internal Revenue Service has recently updated its list of frequently asked questions and answers on the tax treatment of transactions involving virtual currencies.
The principle piece of tax guidance with regards to virtual currencies remains Notice 2014-21, published by the IRS in April 2014, which, using general principles of tax law, determined that virtual currency is property for federal tax purposes. This was explained in the form of 16 FAQs.
However, in response to several calls from taxpayers and the virtual currency sector for more detailed tax guidance, on October 9, 2019, the IRS issued Revenue Ruling 2019-24 and an additional set of FAQs to supplement guidance contained in Notice 2014-21.
In particular, the 2019 revenue ruling addresses common questions by taxpayers and tax practitioners regarding the tax treatment of a cryptocurrency hard fork. In addition, a set of FAQs was published addressing virtual currency transactions for those who hold virtual currency as a capital asset.
The IRS’s virtual currency FAQ webpage was last updated on December 31, 2019, and now contains 45 FAQs on a wide range of tax compliance matters. However, the IRS stresses that these FAQs apply only to taxpayers who hold virtual currency as a capital asset.
For those seeking additional information on the definition of a capital asset, examples of what is and is not a capital asset, and the tax treatment of property transactions generally, the IRS is advising taxpayers to consult Publication 544, Sales and Other Dispositions of Assets.
Nevertheless, the agency is continuing to accept comments on the virtual currency FAQs.