A Secret Message On A BlockchainA covert message can be found inscribed into the first block of the bitcoin blockchain, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” referring to the London newspaper’s lead story of the day. This edition of the newspaper is now one of the most valuable crypto collectibles to date with asking prices over a million dollars! And since those early days in 2009, crypto has steadily increased in prominence, adoption, and mainstream conversation despite naysayers predicting its demise. Accounting firms in the US have increasingly entered the space launching their crypto tax, accounting, and blockchain practices. The AICPA released a practice aid covering both the accounting and auditing of digital assets. The OCC announced in July 2020 that national banks in the USA now have the authority to provide cryptocurrency custody services. Crypto is simply an area that tax professionals can no longer ignore. In fact, there's tremendous opportunity for accounting service providers to grow their business by offering tax services to cryptocurrency users and crypto investment holders.
Wanted: Crypto Tax Savvy ProfessionalCrypto-savvy tax professionals are now needed more than ever given the significant confusion around crypto tax compliance. It also provides tremendous thought leadership and business development opportunity. Back in March of 2014, the IRS issued Notice 2014-21, stating that virtual currencies are to be treated as property, rather than currency (that could generate foreign currency gains or losses) for US federal income tax purposes. Thus general tax principles applicable to property transactions apply to transactions using cryptocurrency. The 2014 IRS notice left much to be desired and a litany of open questions lingered, given the unique make-up of this novel and emerging financial assets class. Fast forward to now and the updated guidance received from the IRS in October of 2019 in the form of a Revenue Ruling 2019-24 and updated FAQs, sought to provide more clarity. The updated guidance, however, still left many questions unanswered and created confusion around more nuanced and complex areas (such as air drop and chain forks) that we'll get into later. The AICPA issued another comment letter (a “must-read” if you’re a tax professional) to the IRS in February 2020 to submit their recommendations relating to the updated guidance dealing with the following five areas:
- Revenue Ruling 2019-24
- New Question on the 2019 Form 1040, Schedule 1
- Frequently Asked Questions
- Form of Guidance
- Prior AICPA Recommendations Not Included in New IRS Guidance
What’s Holding Tax Pros Back?In speaking with numerous leaders across the accounting, legal and tech community there still seems to be very few crypto tax professionals that understand how crypto works, the complexities, and the related potential tax implications. Primary reasons that were given for this shortage in crypto-savvy tax professionals included regulatory ambiguity, lack of client demand, and uncertainty whether this is an area worth pursuing in the long run. In this crypto tax series, we’ll explore some of the most common crypto taxable events that every tax professional ought to know and how tools, like Ledgible Tax, can empower professionals to provide a premium crypto tax service to their clients. In Part 2 we’ll learn about the significant priority the IRS has placed on crypto and kick off with our first taxable event.
Disclaimer: This post is informational only and is not intended as tax or investment advice. For tax or investment advice, please consult a professional