Cryptocurrencies

IRS Tweaks Crypto Question Language on 2021 1040 Draft Form

The U.S. Internal Revenue Service may finally be close to more clearly stating how crypto assets should be taxed. 

In a draft form of the 1040 form for 2021 released on Wednesday, the tax agency has proposed asking the question “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

That compares to the lengthier 2020 question that asked “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

Related: Emmer, Congressional Blockchain Group Ask IRS to Revise Guidance on Charitable Crypto Donations

The 2020 version of the question generated considerable confusion about whether simply acquiring cryptocurrency or moving it from one wallet to another would incur taxes. 

In its guidance last year, the IRS made it clearer that cryptocurrency transactions would only be taxable if they were sold, exchanged for goods or services or exchanged for property including other crypto assets.

The new language, if adopted, would make it much clearer which type of transactions the IRS has in mind.

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