Cryptocurrency Taxation

    The IRS has indicated that transactions in cryptocurrencies such as Bitcoin are taxable just like any other. But for the IRS and taxpayers alike, this is a new landscape with a great deal of uncertainty and confusion.

    Businesses have filing obligations as well, and may be required to file Forms 1099 or Forms W-2 for payments to independent contractors or employees made in digital currencies. In 2014, the IRS issued Notice 2014-21, which clarified that digital currencies are property, not currency, for tax purposes. The notice warned that IRS Forms 1099 and Forms W-2 may be required for these transactions. FinCEN rules say Bitcoin exchanges and Bitcoin miners should register as Money Services Businesses and comply with anti-money laundering regulations.

    While the cryptocurrency economy is growing, so is the government’s scrutiny for taxpayers transacting in this space. The IRS has sought to enforce John Doe summonses for cryptocurrency users’ account information at Coinbase Inc. and possibly other exchanges. We anticipate that more IRS efforts to crack down on cryptocurrency transactions are to come.

    We advise clients on their current obligations and planning opportunities with respect to these transactions, as well as the avenues available to address past delinquencies. Prospective clients who are interested in planning ahead to reduce their prospective exposure, and reviewing and reducing their exposure for tax audits should not delay contacting us or another qualified tax lawyer. We treat all queries as confidential and subject to attorney-client privilege.

    For articles we have written about the IRS’s efforts to tax cryptocurrencies, see: