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Cryptocurrency: U.S. Income Tax and Related Issues

The cryptocurrency boom at the end of 2017 pushed cryptocurrency into the spotlight and resulted in increased attention from regulatory agencies, including the IRS. Given this increased attention and the most recent reminder from the IRS (IR-2018-17) to report virtual currency transactions, it is imperative for taxpayers to be aware of the current state of the tax law and the common tax issues that may arise in the context of virtual currency transactions.

In 2014, the IRS confirmed that virtual currency is treated as property for tax purposes and that the tax principles that apply to property transactions will generally apply to transactions involving virtual currency. Although this suggests that the tax treatment of cryptocurrency transactions should be straightforward, emerging technology (i.e., hard forks) and record-keeping issues have left some taxpayers grappling with what to report on their income tax returns.

In this special report, we outline the current U.S. tax treatment of cryptocurrencies, highlight unanswered questions raised by our network of experts, and provide an overview of the sales and use tax by the states. [Notice 2014-21; 501 T.M., IV.C.; TPS ¶1410.10]

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