Form 1040 Cryptocurrency Question

Form 1040 Cryptocurrency Question

Form 1040 Cryptocurrency Question

Form 1040 Cryptocurrency Question: The IRS has upped the ante when it comes to virtual currency enforcement and compliance procedures for U.S. Taxpayers (virtual currency includes cryptocurrency such as Bitcoin, Litecoin, and Ethereum). In the new version of the (draft) form 1040 for tax year 2020, virtual currency is taking center stage. In fact, even before addressing the standard deduction or dependents, the 1040 form presents a question about virtual currency on the front page of the form:

“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

Here are some tips about Virtual Currency to keep in mind during tax season.

Seven (7) Virtual Currency Tax Question & Answer FAQ

 Here are seven (7) common introductory questions about virtual currency tax and reporting:

Is Cryptocurrency Treated as Currency?

No, cryptocurrency is treated as property.

Therefore, the property taxation and rules and not the currency rules mandate the tax treatment of cryptocurrency. 

Is Cryptocurrency Taxable?


Depending on the nature of the transaction, and how it is being held (received as wages through an employer vs. cryptocurrency investments) it can be taxable as employment wages, capital gains, dividend, interest, etc.

How do I Report Cryptocurrency Transactions on a Tax Return?

The specific nature of the cryptocurrency transaction will determine how crypto income is reported on the tax return.

For example, while capital gains are reported on Schedule D and 8949,  employment income is generally reported as wages or Schedule C self-employment.

What are IRS Letters 6173, 6174 and 6174-A?

The IRS Letters 6173, 6174 and 6174-A refer to the enforcement of cryptocurrency compliance by the IRS.

Namely, the IRS has information that a Taxpayer may have unreported income or reporting, and they are seeking compliance.

Is Cryptocurrency Reported on the FBAR?

The issue of whether foreign cryptocurrency is reported on the FBAR (Foreign Bank and Account Reporting aka FinCEN Form 114) is still up for debate.

FinCEN released some informal guidance on the reporting, but the information is ambiguous at best.

Is Cryptocurrency Reported on FATCA Form 8938?

The issue of whether foreign cryptocurrency is reported on FATCA Form 8938 is also up for debate.

Since FATCA refers to specified foreign financial assets, and cryptocurrency is defined as property, there may be a higher likelihood that it is reportable on Form 8938.

What if I am out of Compliance for Cryptocurrency?

If a Taxpayer is out of Cryptocurrency tax compliance, they may consider the voluntary disclosure or offshore voluntary disclosure programs, to safely get into IRS compliance.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance.