IRS Updates Crypto Question for 2022 Tax Return to Include Gifts

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  • IRS once again expands its inquiries into how tax­pay­ers are inter­act­ing with cryptocurrencies
  • In the new­ly released draft of the 2022 indi­vid­ual income tax return, the IRS clar­i­fied that “receiv­ing” cryp­tocur­ren­cy includes dig­i­tal assets earned through “rewards, awards or compensation”

The IRS has once again changed its annu­al ques­tions on cryp­tocur­ren­cy hold­ings and asso­ci­at­ed gains, mark­ing anoth­er year of increas­ing­ly, if incre­men­tal­ly, detailed probes into the dig­i­tal asset deal­ings of taxpayers. 

In the new­ly released draft of the 2022 indi­vid­ual income tax return, Form 1040, the IRS has clar­i­fied that “receiv­ing” cryp­tocur­ren­cy includes dig­i­tal assets earned through “rewards, awards or com­pen­sa­tion.” The agency also wants to know if tax­pay­ers sent or received cryp­toas­sets as gifts.

“Even though send­ing and receiv­ing gifts aren’t tax­able, it looks like you will have to check ‘yes’ to the ques­tion,” tweet­ed She­han Chan­drasek­era, head of tax at cryp­to account­ing firm Coin Tracker.

The IRS first asked about cryp­to hold­ings in 2019 on the Sched­ule 1 form, which is not required of all tax­pay­ers. In 2020, the agency asked about cryp­to hold­ings for the first time on Form 1040, a req­ui­site for all taxpayers. 

In 2020, the IRS want­ed to know if tax­pay­ers had held cryp­to or sent any hold­ings to dif­fer­ent wal­lets, which are not inher­ent­ly tax­able events. In 2021, the IRS went a step fur­ther and asked if tax­pay­ers had “received, sold, exchanged or oth­er­wise dis­posed of any finan­cial inter­est in any vir­tu­al currency.”

“They’ve reword­ed the ques­tion sev­er­al times over the years since its intro­duc­tion,” Kell Canty, CEO of Ledg­i­ble, said. “One of the inten­tions, I think, is to inform peo­ple so that they know exact­ly what their oblig­a­tions are.”

The broad nature of the ques­tion poten­tial­ly pos­es issues for the unin­formed, accord­ing to Canty. 

“By includ­ing more of those cat­e­gories in there, if there ever is a sit­u­a­tion where the tax­pay­er is involved in some kind of audit sit­u­a­tion, and any of those trans­ac­tion types are not report­ed, it becomes a very easy audit sit­u­a­tion for the IRS,” he said. 

Espe­cial­ly con­sid­er­ing the grow­ing num­ber of tax fil­ers using Tur­b­o­Tax or oth­er­wise prepar­ing their annu­al fil­ings solo, requir­ing them to answer “yes” or “no” for a vari­ety of often-com­plex dig­i­tal asset trad­ing sce­nar­ios may lead to a host of unin­tend­ed consequences. 

“If you check ‘no,’ and the IRS finds out that there was some trad­ing or anoth­er activ­i­ty, it’s an open and shut case,” Canty said.


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  • Casey Wag­n­er

    Block­works

    Senior Reporter

    Casey Wag­n­er is a New York-based busi­ness jour­nal­ist cov­er­ing reg­u­la­tion, leg­is­la­tion, dig­i­tal asset invest­ment firms, mar­ket struc­ture, cen­tral banks and gov­ern­ments, and CBD­Cs. Pri­or to join­ing Block­works, she report­ed on mar­kets at Bloomberg News. She grad­u­at­ed from the Uni­ver­si­ty of Vir­ginia with a degree in Media Studies.

    Con­tact Casey via email at [email pro­tect­ed]



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