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AICPA Urges IRS To Augment Virtual Currency Guidance

Monday, June 4, 2018

The American Institute of CPAs (AICPA) has urged the Internal Revenue Service (IRS) to supplement its guidance on the tax treatment of virtual currency transactions with answers to a set of frequently asked questions.

Notice 2014-21, issued by the IRS in April 2014, provides that virtual currency is treated as property for US federal tax purposes. As such, general tax principles that apply to property transactions apply to transactions using virtual currency.

However, virtual currencies have become much more widespread since the notice was issued, and the guidance has been the subject of regular criticism for its lack of clarity.

"We recommend the IRS release immediate guidance regarding the tax treatment of virtual currency transactions, similar to that of Notice 2014-21 so that authoritative guidance exists," wrote Annette Nellen, chair of the AICPA Tax Executive Committee, in a letter to the IRS. "Specifically, we request additional guidance that will address items from the original Notice 2014-21, and new issues that are relevant to the 2017 tax year, such as chain splits, that have arisen subsequent to the release of the original notice."

"The rapid emergence of virtual currency has generated several new questions on how the tax rules apply to various transactions involving virtual currency and activities and assets related to it," Nellen stated. "Moreover, the development in the number of types of virtual currencies and the value of these currencies make these questions both timely and relevant to a growing number of taxpayers and tax practitioners."

The letter's 27 FAQs address the following 12 areas:

  • Expenses of obtaining virtual currency;
  • Acceptable valuation and documentation;
  • Computation of gains and losses;
  • Need for a de minimis election;
  • Valuation for charitable contribution purposes;
  • Virtual currency events;
  • Virtual currency held and used by a dealer;
  • Traders and dealers of virtual currency;
  • Treatment under Internal Revenue Code (IRC) section 1031 (Exchange of real property held for productive use or investment);
  • Treatment under IRC section 453 (Installment sales);
  • Holding virtual currency in a retirement account; and
  • Foreign reporting requirements for virtual currency.

"Virtual currency transactions, in which taxpayers increasingly engage, add a new layer of complexity to the analysis of a client's reporting requirements," Nellen wrote. "The issuance of clear guidance in this area will provide confidence and clarity to preparers and taxpayers on application of the tax law to virtual currency transactions."