Form 1040 Cryptocurrency Question
Form 1040 Cryptocurrency Question for 2020: When the IRS drafted/revised the new form 1040, they made a significant addition to the form. The new form 1040 (draft version) includes a yes or no question about virtual currency. In general, virtual currency is developing as one of the Internal Revenue Service’s key enforcement priorities. With respect to the new draft 1040, the virtual currency question precedes the standard deduction or dependents section, and presents as the following:
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
Important Virtual Currency (Crypto) Tax Questions & Answers
Here are some of the more common virtual currency crypto tax questions we see often:
Is Crypto Treated as Currency or Property
No, cryptocurrency is treated as property.
Therefore, the currency rules to do not mandate the tax treatment of cryptocurrency.
Is Cryptocurrency Taxed in the U.S.
Depending on the nature of the transaction, and how it is being held (received as wages through an employer vs. cryptocurrency investments) it is taxable as employment wages, capital gains, dividend, interest, etc.
How is Cryptocurrency Reported?
Depending on the nature of the cryptocurrency income will determine how it is reported on the tax return.
For example, capital gains is reported on Schedule D and 8949.
Meanwhile employment income is generally reported as wages or Schedule C self-employment.
Did You Receive an IRS Letter 6173, 6174 or 6174-A?
The IRS Letters 6173, 6174 and 6174-A refer to the enforcement of cryptocurrency compliance by the IRS.
Namely, the IRS has information that a Taxpayer may have unreported income or reporting, and they are seeking compliance.
Cryptocurrency & FBAR Reporting
The issue of whether foreign cryptocurrency is reported on the FBAR (Foreign Bank and Account Reporting aka FinCEN Form 114) is still up for debate.
FinCEN released some informal guidance on the reporting, but the information is ambiguous at best.
Cryptocurrency & FATCA Form 8938 Reporting
The issue of whether foreign cryptocurrency is reported on FATCA Form 8938 is also up for debate.
Since FATCA refers to specified foreign financial assets, and cryptocurrency is defined as property, there may be a higher likelihood that it is reportable on Form 8938.
What if I am out of Compliance for Cryptocurrency?
If a Taxpayer is out of Cryptocurrency tax compliance, they may consider the voluntary disclosure or offshore voluntary disclosure programs, to safely get into IRS compliance.
We Specialize in IRS Offshore & Domestic Voluntary Compliance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.