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The Build Back Better Act – Tax Implications For Cryptocurrencies

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On November 3, 2021, the U.S. House Budget Committee introduced the latest version of the Build Back Better legislation (the “BBB Legislation” or “BBB Act”), which makes historical investments in education, climate change, and the economy. Although much has been written on the surcharge for certain high-net-worth individuals and a global minimum tax on corporations, other proposed changes in the legislation to the tax code stand to create ripple effects throughout the crypto ecosystem. We discuss the direct and indirect tax impact of the BBB Legislation for crypto investors, miners/validators, and other players further below.

Direct Tax Impact on Cryptocurrency – Wash Sale and Constructive Sales

The BBB legislation takes further steps to treat cryptocurrencies like traditional securities by subjecting all digital assets to the (A) wash sale rules under Section 1091 and (B) constructive sale rules under Section 1295 of the Code. The new wash sale rules would be effective after December 31, 2021, and the amended constructive sale rules would apply as of the date of enactment.

Written by Jason Freeman | Posted in Build Back Better Plan • Cryptocurrency

Recent IRS Cryptocurrency Memorandum: Surprise, Surprise, It’s Still Taxable

As tax time approaches for many, taxpayers and tax professionals alike are engaging in the annual ritual of gathering their cryptocurrency transactions and seeking out the latest and greatest guidance from the IRS on the subject. As luck would have it, the IRS recently released an internal memorandum fleshing out its stance on the taxation of virtual currency received in exchange for providing services. The memorandum describes the taxation of virtual currency received in the “crowdsourcing labor market”—for example, for performing microtasks or other projects—but its principles are applicable much more broadly.

The IRS memorandum was quietly made public on August 28. It is a reminder that the IRS continues to receive requests for additional cryptocurrency tax guidance. In the memorandum, the IRS lays out its view that convertible virtual currency is “property” for federal tax purposes, and that its receipt in exchange for performing services gives rise to gross income. But let’s look a little deeper at the IRS’s reasoning. For starters, the IRS memorandum poses the following question:

Written by Jason Freeman | Posted in Cryptocurrency