Wikipedia Definition: A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
The internet allows us to store information in the cloud and buy and sell goods with digital money. In one sentence are three things you can’t see or touch. Starting with Notice 2014-21, Treasury guidance  and tax form instructions are slowly adding rules to track digital money and transactions of US citizens. The forms are the same; the terminology and transactions are different.
Terminology challenges for tax law:
Items to be reported with your return:
Ownership of cryptocurrency,
Payment made or received with digital funds,
Exchange of one type of currency for another, and
Sell of currency.
This could include:
Capital gains or losses,
Earned income, or
Asset basis or cost.
Reporting requirements for trading by crypto platforms,
Accumulating the detailed cost basis,
Calculating gain or losses by transaction, and
Timing for income recognition.
In an ongoing case,a taxpayer originally paid tax on staking rewards and then filed an amended return to remove the income and the IRS issued a refund as the government did not want to defend the position that tokens created by staking were taxable income. The taxpayer refused the refund and has decided to take this to tax court to get a formal ruling in order to create a precedent for other stakers and protect himself from future IRS scrutiny. The question presented was timing of income recognition. Does the receipt of tokens generate income upon receipt or upon use? An example presented for illustration was the products made by a baker. Does income occur when the bread is baked or when it is sold?
The rules are slowly evolving. We have tax consultants with experience with reporting in this emerging financial frontier.
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at firstname.lastname@example.org. You may also contact Denise Felber, Tax Partner, at email@example.com
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