Cryptoccurency

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On July 11, 2023, the Senate Finance Committee released an open letter to the Digital Asset Community asking a variety of questions in connection with possible future legislation. Public comments must be emailed to the Senate Finance Committee staff at responses@finance.senate.gov by September 8, 2023. The questions are related to the following nine general areas.

  • Marking-to-market for traders and dealers;
  • Trading safe harbor;
  • Treatment of loans of digital assets;
  • Wash sales;
  • Constructive sales;
  • Timing and source of income earned from staking and mining;
  • Nonfunctional currency;
  • FATCA and FBAR reporting; and
  • Valuation and substantiation.

The balance of this blog describes each area, lists each question, and discusses certain of them.

This blog post summarizes recent federal bills that have been introduced (but not yet passed), proposals by the Biden Administration, and guidance issued by the Internal Revenue Service with respect to the taxation of digital assets.

Summary of the Guidance:

The Responsible Financial Innovation Act (the “RFIA”) introduced…

In this first of (we hope) many posts on the interesting and myriad tax issues arising in the world of cryptocurrency and blockchain technology, we focus on the very basic U.S. federal income tax consequences of cryptocurrency transactions.  The following is a very high-level discussion of the consequences generally applicable to U.S. individual holders of cryptocurrencies, and will not be applicable to all taxpayers depending on their particular situation.

Is it property or is it money?

While it might seem an academic question, the distinction between property and currency is the key to the U.S. federal income taxation of cryptocurrencies.  Gain on nonfunctional foreign currency exchanges (i.e., currencies other than the main currency used by a trade or business) is generally ordinary income, and therefore taxable under current law at marginal rates up to 39.6% (or 43.4%, factoring in the net investment income tax).  In contrast, gain or loss on the sale of property can constitute either ordinary or capital income, depending on whether the property sold is or is not a capital asset.  If a capital asset, the reduced long-term capital gains rate (up to 23.8% under current law, including the net investment income tax) could apply if the asset sold was held for more than one year.