Crypto Investors Get Some Answers in US Tax Form Instructions
The IRS has given US cryptocurrency holders a bit more clarity about how to report digital assets on their 1040 income tax forms, a likely precursor to regulatory guidance.
In 2022 tax form draft instructions released late Monday, the Internal Revenue Service expanded how taxpayers should list their crypto transactions, including switching the verbiage from “virtual currency” to “digital assets.”
“They're being a little more attuned to the terminology of the industry and being more inclusive of potential crypto transactions,” said Adnan Islam, tax partner with Marcum LLP.
The additional clarity is welcome, tax professionals said, but getting guidance is still their No. 1 ask.
In August, the IRS expanded the crypto question on the 1040 tax form to specify that taxpayers should report if they had received crypto as a “reward, award or compensation.”
The latest instructions change “virtual currency” to digital assets,” a nod to the definition in Section 6045 as amended in the 2021 infrastructure bill that expanded cryptocurrency reporting requirements. That change addresses ambiguity about whether a nonfungible token, or NFT, is consider virtual currency. In the updated form, the agency explicitly says, digital assets includes NFTs and virtual currencies.
The change in terminology is a good sign the agency is preparing more guidance, said Miles Fuller, head of government solutions at TaxBit and former senior counsel with the Office of Chief Counsel at the IRS.
“The IRS is ramping up by coalescing their terminology around this digital asset term that was in the statute,” he said. “So it means that it's more likely than not in the near future, we're gonna see those regs come out and the IRS continuing to move forward with sort of
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