US residents to report cryptocurrency investments on the first page of the tax return

U.S. citizens who have engaged in any transactions with Bitcoin and other cryptocurrencies will report them immediately after filling out the identification details on the first page of the Internal Revenue Service (IRS) Form 1040. This follows from the 2020 draft.

The question for the taxpayer is posed in the following format:

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

Back in 2014, the IRS first announced its intention to tax cryptocurrencies. At that time, the agency said that gains and losses from operations with digital currencies, if the currencies are used as non-monetary assets, would be treated as capital gains. Salaries paid to employees in cryptocurrency would also be taxable. Crypto payments to independent contractors and service providers must be reported on Form 1099.

The individual income tax return (Form 1040) is the main tax return for about 150 million Americans. The question on digital currencies first appeared in 2019 in Schedule 1, which is completed only by those required to report additional income. In other words, if there was no such requirement for the taxpayer, they could have not reported their cryptocurrency transactions.

Now the IRS will require information about this from all taxpayers.

Changes to the tax return have drawn criticism from a number of lawyers specialising in digital assets. Justin Wales, co-chair of the Blockchain and Digital Currency Practice, said that the wording of the cryptocurrency question is too vague and could be challenged.

“If you get paid in crypto, you must declare it as wages. If you realised gains from a crypto investment, you must declare it as capital gains. But, constitutionally, the government should not know whether you purchased, received or acquired crypto assets, as they do not take the form of money…”, he explained.

If you get paid in crypto, you must declare it as wages. If you realized gains from a crypto investment, you must declare it as a cap gain. But Constitutionally, the gov shoud not know whether you purchased, received, or acquired crypto because crypto is not just money…

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

“The IRS’s requested information goes beyond what is necessary for the agency to perform its job,” added the lawyer.

Even if you think BTC is the only true coin, the fact is other projects utilise 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

Earlier this July, the IRS began seeking tools to track anonymous cryptocurrencies.

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