IRS clarifies when Bitcoin need not be reported on a tax return

US residents do not need to report the acquisition of cryptocurrency on the first page of Form 1040 if they adhere to the Buy&Hold strategy — a strategy that involves buying assets and holding them long term in anticipation of substantial price growth. This follows from the IRS’s updated FAQ page of the Internal Revenue Service.

Last year the IRS released a draft return, where the taxpayer question is framed as follows:

“Have you during 2020 ever received, sold, sent, exchanged, or otherwise acquired any material interest in any of the virtual currencies?”

At the time, many market experts criticised the new rules.

Even if you think BTC is the only true coin, the fact is other projects utilize other chains that need a coin to operate. IRS asking US residents to declare all crypto is as inappropriate as asking citizens to declare all email addresses, social media handles, or data plans.

— Justin Winston Ono Wales (@WinstonOnoWales) August 20, 2020

“Asking the IRS to declare all crypto assets is as inappropriate as asking for all email addresses, social media accounts, or data plans,” wrote Justin Wales, co-chair of the Blockchain and Digital Currency Practice.

Some tax-management experts said the rules require further clarification.

Only in early 2021 did the agency clarify that a simple purchase and subsequent holding of a virtual currency does not need to be reported on the tax return.

Source: IRS website.

According to the IRS, a taxable event occurs when you sell a crypto asset.

“When you sell virtual currency, you must determine the capital gain or loss from the transaction,” the IRS website states.

Earlier ForkLog reported that the IRS sent letters to cryptocurrency holders demanding settlement of large liabilities to the state.

Subscribe to ForkLog news on Telegram: ForkLog FEED — the full news feed, ForkLog — the most important news and polls.