New Question Regarding Cryptocurrencies Added to Form 1040

By Jennifer Mace, CPA

Virtual currency investors, and blockchain miners, take note: the IRS wants to know more about your 2019 cryptocurrency transactions.

In an effort to raise awareness of the tax consequences involving virtual currencies, the IRS added a new check box to the top of Schedule 1, Form 1040, Additional Income and Adjustments to Income that asks whether the taxpayer was involved in any virtual currency transactions in 2019. The IRS noted that some taxpayers with virtual currency transactions may have previously failed to report income and pay the resulting tax or did not report their transactions properly. Thus, the IRS is now directing responsibility for the accurate reporting of these transactions, in large part, to professional tax preparers.

The new question, as it appears on the Form 1040, is:

“At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

Taxpayers or their professional tax preparers must then respond with a simple “Yes” or “No.” If the taxpayer can answer “No” to this question, and if they have no other reason to fill out the Schedule 1, then they are not obligated to file the form.

The rise of cryptocurrencies in the last several years has led to an ongoing discussion of their legal standing, which can make it difficult for investors to know what they are obligated to disclose. To help clarify the topic, the IRS issued new guidance earlier this year for taxpayers and their professionals to refer to. The new documents include Revenue Ruling 2019-24 and a page of Frequently Asked Questions on Virtual Currency. These supplement the previous guidance the IRS issued back in 2014 that described how virtual currency is treated for federal tax purposes.

If you have questions regarding your virtual-transaction, contact one of our Cryptocurrency team members at Clark Nuber.

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