Crypto Tax Attorney & CPA-Compliance, Losses and Defenses
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Taxation of Cryptocurrency
Disclaimer: The following Cryptocurrency taxation material is for general information purposes only and should not be considered legal or tax advice.
As digital assets such as Bitcoin, Ethereum, and other virtual currencies continue to grow in adoption and value, cryptocurrency taxation in the United States has become an increasingly significant area of concern for both individuals and businesses. The Internal Revenue Service (IRS) treats cryptocurrency as property for federal tax purposes. As a result, any transaction involving digital currencies—whether it be buying, selling, exchanging, mining, staking, receiving crypto as compensation, or using it to purchase goods or services—may constitute a taxable event.
Taxpayers are required to report all capital gains and losses resulting from cryptocurrency transactions on their tax returns. In some cases, transactions may also be subject to income tax if crypto is received in exchange for services or through mining operations. Non-compliance or underreporting can lead to substantial penalties, interest, and potential IRS enforcement actions.
Given the evolving regulatory environment and increased IRS scrutiny, it is imperative that individuals and entities involved with virtual currencies maintain meticulous records of all crypto-related activities, including cost basis, transaction dates, fair market value at the time of exchange, and purpose of use.
Cryptocurrency Losses, Fraud, and Theft (IRC §165 Analysis)
In recent years, a significant number of taxpayers have experienced cryptocurrency losses due to fraud, so-called “pig butchering” schemes, exchange failures, and unauthorized transfers.
In certain circumstances, these losses may qualify for tax treatment under Internal Revenue Code §165, depending on whether the loss is properly characterized as a theft loss, investment loss, or other deductible event.
However, not all losses qualify. Improper reporting or inconsistent treatment may expose taxpayers to IRS scrutiny, penalties, or audit risk.
These matters often require careful legal and tax analysis, particularly where:
- Significant losses are involved
- Transactions were not previously reported
- Foreign exchanges or offshore wallets are implicated
- There is uncertainty regarding recovery
The major sources of IRS (Internal Revenue Service) guidelines include:
🔹 IRS Notices & Guidance
- Notice 2014-21
- Topic: First IRS guidance on virtual currency.
- Key Points: Treats virtual currency as property for federal tax purposes.
- IRB: 2014-16 I.R.B. 938
- Notice 2014-21
- Rev. Rul. 2019-24
- Topic: Tax treatment of hard forks and airdrops.
- Key Points: Clarifies when a taxpayer has gross income due to hard forks.
- IRB: 2019-44 I.R.B. 1004
- Cryptocurrency 2019 Frequently Asked Questions
- FAQs on Virtual Currency Transactions (updated periodically)
- Topic: Ongoing IRS Q&A guidance on crypto, including mining, payments, gifts, and reporting.
- IRS Crypto FAQ Page
- Notice 2019-24 (companion to Rev. Rul. 2019-24)
- Clarification: Not a separate notice but often paired with Rev. Rul. 2019-24 to provide examples and context. Cryptocurrency 2019 Frequently Asked Questions
- Form 1040 Instruction (2020–present)
- Virtual Currency Question: Since 2020, IRS Form 1040 includes a question on virtual currency transactions. How to answer the digital question on your tax return?
Complex Cryptocurrency Matters Require Structured Analysis
Cryptocurrency taxation issues frequently extend beyond basic reporting and may involve overlapping areas such as IRS audit exposure, foreign account reporting, loss characterization, and prior compliance issues.
Each matter must be evaluated based on its specific facts and documentation. In many cases, the legal classification of transactions—and the timing of reporting—can materially affect the outcome.
🔹 Internal Revenue Bulletins (IRBs)
IRBs are weekly official publications. Key ones related to cryptocurrency:
| IRB Number | Date | Content |
| 2014-16 | Apr 14, 2014 | Contains Notice 2014-21, establishing that crypto is treated as property. |
| 2019-44 | Oct 28, 2019 | Contains Rev. Rul. 2019-24, hard fork and airdrop taxation. |
| 2021-10 | Mar 8, 2021 | Includes updates to crypto FAQ and tax filing instructions. |
| 2022-01 | Jan 3, 2022 | Updates on international reporting and FBAR/crypto overlaps. |
Who This Consultation Is Intended For
This consultation process is generally appropriate for:
- Individuals with substantial cryptocurrency gains or losses
- Victims of fraud, misappropriation, or unauthorized transfers
- Taxpayers with unreported or partially reported crypto activity
- Clients facing IRS or state tax inquiries
- Individuals with offshore exchanges or foreign reporting obligations
⚠️ Important Notice
Due to the complexity and sensitivity of cryptocurrency matters:
- We do not provide legal or tax advice via email
- We do not review unsolicited documents
- All matters are evaluated through a structured consultation process
Searchable here: IRS IRB Search Page
🔹 Additional Crypto Legal & Tax Resources
How to report digital asset transactions for tax purposes?
Taxation of Cryptocurrency – General
Zaher Fallahi, Cryptocurrency Tax Attorney, CPA – Trusted in Crypto Tax Since 2011
Zaher Fallahi, a Dual-Licensed Attorney and CPA, has represented clients in complex IRS tax matters involving audits, appeals, and digital asset compliance. His expertise includes Crypto Tax, Stolen Crypto, Ponzi Scheme Loss Deduction Relief, IRS Resolutions, Offshore Crypto Accounts, and Anti-Money Laundering (AML) Guidance.
Credentials & Training
- MIT: Certificate in Blockchain Technologies, The Basis for Cryptocurrency
- Harvard Law School: Training in Negotiation and Leadership
Request a Cryptocurrency Case Evaluation
Before scheduling a consultation, prospective clients are encouraged to provide a brief summary of their matter so that we may determine whether the issue is appropriate for further review.
👉 [Button: Submit Confidential Intake Form]
Suggested Intake Information
- Year(s) of transactions
- Approximate amount of gains or losses
- Exchanges or wallets involved
- Whether transactions were previously reported
- Any IRS or tax authority contact
Next Step
Qualified matters are handled through a scheduled consultation conducted under attorney-client privilege.
Contact for a Confidential Consultation
📞 Toll-Free: 1-877-687-7558
📧 Email: taxattorney@zfcpa.com
Recognition:
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- A small percentage of U.S. lawyers are also CPAs; we are proud to be among them
Engagements are accepted selectively based on complexity, documentation, and overall fit.
