AICPA recommends FAQs to IRS on taxation of virtual currency

The American Institute of CPAs (AICPA) has sent the Internal Revenue Service (IRS) recommended questions and answers about the tax treatment of virtual currency transactions that the IRS could issue to supplement the guidance provided in Notice 2014-21.

“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,” Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, wrote in the letter. “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
• Treatment under IRC section 453
• Holding virtual currency in a retirement account
• 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.”

The AICPA first submitted comments on Notice 2014-21 on June 10, 2016.