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Tax Notes Quotes Zhanna Ziering on Final Instructions to Form 1040 on Reporting of Virtual Currency

February 8, 2021, Tax Notes

The IRS’s decision to delete purchases of virtual currency and acquisitions of a financial interest in virtual currency from the list of reportable transactions in the final instructions to Form 1040 may cause more confusion.

. . .

Zhanna A. Ziering of Caplin & Drysdale agreed that the revisions to the instructions seem to be sending mixed signals.

On the one hand, the instructions make clear that the list of reportable transactions isn’t exclusive, Ziering said. “But on the other hand, it looks like the IRS only wants to capture a possible taxable event,” she said.

However, the first item on the list — “the receipt or transfer of virtual currency for free” — requires taxpayers to report virtual currency received as a gift, even though that isn’t a taxable event, said Ziering.

“I just find these edits to be peculiar because the whole definition is vague,” Ziering said.

IRS Responds

Asked by Tax Notes what the phrase “otherwise acquired a financial interest” means in a virtual currency context, an IRS spokesperson said, “If the only activity someone has is a purchase/acquire and hold, then they don’t have to check the box.” 

The agency will continue to review the question and instructions in future years, the spokesperson added. 

That response “is interesting,” said Ziering. “But it does conflict with instructions as written.” 

For the full article, please visit Tax Noteswebsite (subscription required).


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