New IRS Scrutiny on Cryptocurrency Reporting: Filing Requirements and Exchange Treatment

The IRS announced concern over "massive" underreporting of such income and has dedicated considerable time and resources to investigating possible tax fraud by underreporting income from cryptocurrencies. Tax counsel, accountants and advisers for clients using cryptocurrency must understand the reporting requirements for exchange transactions and the IRS scrutiny that clients who engage in cryptocurrency transactions are likely to face in the future.

Crypto currency is digital currency using encryption techniques, rather than a central bank, to generate, exchange and transfer units of currency. Uniquely, no bank or government authority verifies the transfer of funds. Investors may use "mining operations," purchase, receive payment, or transfer crypto units to and from another user.

Initial IRS guidance on cryptocurrency (IR 2014-36), treated all virtual currency as property rather than currency for U.S. tax purposes. Treasury left several questions unanswered, including whether cryptocurrency is business property eligible for tax-free exchange under Section 1031 and whether cryptocurrency must be reported on Foreign Bank Account Reports (FBARs) or other foreign asset disclosure forms such as Form 8938. The 2017 tax reform impacts the analysis with its limitation on like-kind exchanges for non-real property transactions. Now, in furtherance of their initiatives, the IRS Large Business & International Division (LB&I) recently added virtual currency to its list of compliance campaigns.

Listen as our experts provide practical guidance on advising clients of U.S. tax reporting and payment obligations arising from cryptocurrency transactions.

1. Types of cryptocurrency
2. Means of obtaining cryptocurrency
3. Current IRS guidance
4. Valuation issues
5. Tax reporting requirements for cryptocurrency exchanges
6. Disclosure requirements for cryptocurrency ownership
7. Criminal investigations and prosecutions for failing to properly report cryptocurrency transactions

The panel will review these and other key issues:

• What are the limitations on loss recognition on cryptocurrency transactions and exchanges?
• What are the income tax reporting requirements for cryptocurrency exchanges and valuations?
• What position does IRS appear to be taking on whether cryptocurrency exchanges qualify for 1031 treatment as well as the impact of tax reform?
• What are the disclosure requirements for cryptocurrency ownership?
• How to use the IRS Voluntary Disclosure policy to get into compliance and the availability of "qualified amended returns" to avoid penalties?

Learning Objectives

After completing this course, you will be able to:

• Identify reporting risks for exchanges of one type of cryptocurrency for another, as well as exchanges for property
• Recognize valuation challenges in determining gain or loss on cryptocurrency holdings
• Determine proper tax treatment of increases in cryptocurrency due to "mining"
• Discern the character of gain or loss for cryptocurrency transactions
• Verify international and domestic information reporting requirements on investments in cryptocurrency

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing foreign tax forms and schedules at mid-level within the organization, supervising other preparers/accountants. Specific knowledge and understanding of foreign currency translations and current rules for calculating taxable income from conversion of foreign currency.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).