Taxing a Moving Target: Tax Issues Involving Cryptocurrency

Tax Review No. 349

Lamborghinis lined New York City’s Javits Center for a day this past May. The occasion was not a car show but a cryptocurrency conference. Cryptocurrencies and the related blockchain technology have proven very lucrative over the past few years, and many organizations—from technology behemoths and big banks to the U.S. government —are incorporating the technology into what they do.

Cryptocurrencies raise many tax issues, with reporting of income front and center. After providing some background, this article will review some of the tax issues. The reader will quickly see that many of the tax questions remain unanswered. Much of this results from complexities of the technology itself—it is difficult for a person not versed in technology to understand much of what has happened. In Parts I and II, we will provide some background and review the basics. In Part III, we will provide an overview of the tax issues. Next, in Part IV we will review developments in the enforcement area. We will then review IRS guidance (Part V) and the tax treatment of common transactions that arise in these areas, such as forks (Part VI) and coin offerings (Part VII). We will end with a discussion of tax reporting issues in Part VIII.