IRS to simplify reporting of income from crypto transactions

A revised version of the US Internal Revenue Service (IRS) Form 1040 includes refined wording on cryptocurrency transactions. According to interviewed Bloomberg Law experts surveyed, this will reduce ambiguity for taxpayers.

In the previous version, taxpayers were asked to answer the following question:

«Have you during 2020 received, sold, sent, exchanged, or otherwise acquired a material interest in any of the virtual currencies?»

In the draft 2021 tax return, the IRS dropped the word “send,” and the wording “and to acquire in other ways” was replaced with “and to dispose of in other ways”.

The director of tax matters at the consulting firm Marcum, Evan Fox, said the changes will noticeably ease taxpayers’ lives.

«This will allow not to disclose information in cases where an individual already owns cryptocurrency but simply transfers it to another exchange or wallet for security purposes», — the specialist told the publication.

2021 question doesn’t have «send» and «acquire» financial interest parts.

Seems like going forward IRS only wants to know about your taxable transactions.

This makes more sense compared to checking «Yes» when you send or acquire a financial interest in crypto (non-taxable).

— Shehan 🧗‍♀️|🇺🇲|🇱🇰 (@TheCryptoCPA) July 22, 2021

«It seems that in the future the IRS wants to know only about taxable transactions. This makes more sense compared with answering ‘Yes’ when you send or acquire a financial interest in cryptocurrency (non-taxable).» — said to the publication.

Chandrasekera argued that the wording «Receive» could mean payment in crypto. He expects to see IRS clarifications of each term in the instructions. The instructions will be published later in the year.

Good question.

I think «Receive» means, for example, getting paid in crypto.

Will have to wait and see if the IRS clarified what’s exactly included under each term in the instructions.

Instructions will be out later in the year.

— Shehan 🧗‍♀️|🇺🇲|🇱🇰 (@TheCryptoCPA) July 22, 2021

As ForkLog noted in October, the IRS Form 1040 allows not to disclose information about cryptocurrency holdings for retention in the absence of buy/sell transactions.

The IRS first signaled its intent to tax digital assets back in 2014. The question about investments in cryptocurrencies appeared on the front page in the 2020 return.

In June, the US Internal Revenue Service sought increased funding to bolster oversight in the crypto space.

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