An official from the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) that specializes in cybersecurity policies stated last week at the American Institute of CPAs National Tax Conference in Washington, D.C., that a U.S. holder of cryptocurrency on a foreign exchange is not required to disclose the information on a foreign bank account report. At the same conference, however, officials for the IRS Office of Associate Chief Counsel indicated that the IRS has still not decided whether cryptocurrency held in a foreign exchange must be reported on IRS Form 8938, which is a disclosure statement that is separate and apart from a foreign bank account report. The news is not a surprise to taxpayers given that FinCEN responded to a previous request over the summer that virtual currency held in an offshore account was not a reportable account on a foreign bank account report.
At the same conference, a different official from the IRS Office of the Associate Chief Counsel confirmed that certain like-kind exchange rules that allow taxpayers to postpone paying tax on gain where property is exchanged for like-kind property do not apply to cryptocurrencies. The rules with respect to like-kind exchanges were changed in 2018 as part of tax reform. Accordingly, the comment addresses any like-kind exchanges occurring prior to 2018 and taxpayers who took the position that the exchange of a token for another qualified as a tax-free exchange.
In other news, according to a recent report, startups providing crypto tax software have seen a significant increase in users. The report indicates this may be related to the IRS's guidance issued this fall addressing airdrops and hard forks, and the IRS enforcement letters that were sent during the summer to thousands of virtual currency traders warning them about the failure to properly report crypto transactions.
For more information, please refer to the following links:
- IRS Official Says Pre-2018 Crypto Exchanges Aren't 'Like-Kind'
- IRS Turns Critical Eye Toward Crypto ATMs, Kiosks
- Coinbase Summons Proper In Income Tax Probe, IRS Says
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