A Secret Message On A Blockchain
A 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.
In fact this edition of the newspaper is now one of the most valuable crypto collectibles to date with asking prices in excess of 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 year-on-year. According to 99Bitcoins’ obituary archive, bitcoin has been proclaimed dead 381 times since it came into existence.
Accounting firms in the US have slowly and increasingly entered the space launching their crypto and blockchain practices. The AICPA released a practice aid covering both the accounting and auditing of digital assets. The OCC announced in July that national banks in the USA now have the authority to provide cryptocurrency custody services.
It is simply an area that the tax professional can no longer ignore.
Wanted: Crypto-savvy Tax Professional
Crypto-savvy tax professionals are now needed more than ever given the significant confusion around crypto tax compliance. It also provides a tremendous thought leadership and business development opportunity.
Back in March of 2014, the IRS issued Notice 2014-21, stating that cryptocurrency was 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 asset class.
Fast forward five years 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 airdrops and chain forks (more on that 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 tax professionals that really 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 the tools, like Ledgible Tax, available to help tax and accounting professionals provide excellent, reliable service to their clients.