In a letter dated May 16, 2019, IRS Commissioner Charles Rettig stated that the IRS intends to issue new cryptocurrency guidance in the near future. The letter from Commissioner Rettig was in response to a request from 21 representatives in Congress for the IRS to provide clarity on reporting cryptocurrency transactions.
In his letter, Commissioner Rettig reiterates the IRS’s position, set out in Notice 2014-21, that cryptocurrency is treated as property for US Federal tax purposes and that existing tax principles applicable to property transactions apply. Thus, for example, a taxpayer that receives cryptocurrency in consideration for the performance of services will be required to include the fair market value of the cryptocurrency received in income as compensation. Similarly, a taxpayer that exchanges or uses cryptocurrency to purchase goods or services will be required to recognize gain or loss in an amount equal to the difference between the cryptocurrency’s fair market value and its tax basis.
The letter then goes on to state that “taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions” and that the IRS has made it a priority to issue guidance. Among the issues expected to be addressed in the guidance are acceptable methods of computing and assigning cost basis, and the tax treatment of forks.
If you have any questions relating to the US tax consequences of investing in, exchanging or using cryptocurrencies, please contact us and we will be happy to help.
