Dropdown button for navigation mobile view

Cryptos and Their Taxation in the US

crypto-tax-usa

About Zaher Fallahi

Zaher Fallahi, Cryptocurrency Tax Attorney, CPA, advises cryptocurrency owners with cryptocurrency tax, FBAR, IRS representation, offshore accounts and foreign gifts. Read more

We are licensed in Washington D.C. and California and defend crypto taxpayers nationwide before the IRS and tax court.

Massachusetts Institute of Technology (MIT)

Zaher Fallahi, Cryptocurrency Tax Attorney, CPA, has completed “Blockchain Technologies” Certificate Program at MIT. Blockchain is the underlying technology for Cryptocurrency.

Harvard Law School

Zaher Fallahi, IRS Defense Tax Attorney, CPA, has completed “Negotiation and Leadership” and “Leveraging the Power of Emotions as You Negotiate” Certificate Programs at Harvard Law School.

Crypto Tax 5 min Free “General” Consultation

Consultation is available via

Taxation of Cryptocurrency


The frequently asked questions (“FAQs”) below expand upon the examples provided in Notice 2014-21 ( see above) and apply those same longstanding tax principles to additional situations.

Disclaimer: The following Crypto tax material is intended for general information only and not legal or tax advice.

On March, 25, 2014, The Internal Revenue Service (“IRS”) issued the Notice 2014-21 providing answers to frequently asked questions (“FAQs”) on virtual currency, such as bitcoin.

These FAQs provide basic information with respect to the US tax implication of transactions involving cryptocurrencies. Increasingly virtual currencies are used as real currencies like the US (or foreign) coin and paper money as legal tender.

Individuals and businesses use them in purchasing and selling goods, services, investments and other cryptocurrencies.

Although, there have been some statements or guidance offered by certain government agencies such as Financial Crimes Enforcement Network (“FinCEN”) and others for other purposes such application of FBAR and other matters, to date, Notice 2014-21 is still the sole official tax authority issued by the IRS.

The notice provides that for the IRS purposes, virtual currencies are treated as property, and the general tax principles applicable to property also apply to virtual currency transactions.

Virtual currencies such as Bitcoin that have equivalent values and used as currency substitute, are referred to as “convertible” virtual currencies. The FinCEN has a comprehensive guidance regarding convertible virtual currencies.

The Treasury Department and the IRS have solicited comments from the public regarding other types or aspects of virtual currency transactions for future guidance.

The American Bar Association (“ABA”) Taxation Section (ABA), and the American Institute of Certified Public Accountants (“AICPA”) Taxation Section (AICPA), have submitted their proposals on crypto taxation, and have requested additional authoritative guidance on particular relevant issues.

Due to significant developments on cryptocurrency in 2017, the ABA Taxation Section issued comments on Tax Treatment of Hard Fork

1- Cryptos are treated as property by IRS (basis, sale and exchange)

For the federal tax purposes, cryptocurrencies or virtual currencies are treated as “property’. Therefore, transactions involving cryptocurrencies are governed by the same tax principles applied to “property” contained in the IRS Publication 544, Sales and Other Dispositions of Assets.

You may realize gain or loss when crypto is sold or exchanged. You will realize a gain if the amount of consideration you receive from the sale or exchange of crypto exceeds your adjusted basis in the particular crypto. Or, you will realize a loss if the adjusted basis or cost of your crypto is greater the amount you receive from the sale or exchange of your crypto.

Crypto sale and exchange

Under the IRS, a sale is a transfer of property for money or a mortgage, note receivable, or other promise to pay money. An exchange is a transfer of property for other property or services. If give your Ethereum and receive US dollars in consideration, that is a “sale”.  However, if you give your Ethereum and receive Bitcoin in consideration, that is an “exchange”.  Both receipts in these examples are “taxable” income.

Example 1:

On June 25, 2017, you sold your crypto for $400, and had purchased it on January 2, 2016, for $100. Here you will have $300 long-term capital gains because you had kept the crypto as capital asset (stocks, bonds, and other investment property are generally capital assets) for longer than one year.

(1) Sale proceeds                        $400

(2) Less basis                            ($100)

(3) Long-Term Capital Gains    $300

Example 2:

If the facts were the same Example 1 above, except that you had acquired the crypto on September 15, 2016 for $500, then you will have $100 short-term capital loss.

(1) Sale proceeds                       $400

(2) Less basis                           ($500)

(3) Short-Term Capital Gains  ($100)

Example 3:

If the facts were the same as Example 2 above, except that you exchanged your Bitcoin that had purchased on January 2, 2016, for $100, for Ethereum with fair market value of $400. Here you will have $300 long-term capital gains.

(1) Sale proceeds ( fair market value of Ethereum) $400

(2) Less basis ( basis of Bitcoin)                             ($100)

(3) Long-Term Capital Gains                                   $300

2- Cryptos are not treated as currency by IRS

Under the current tax law, cryptocurrencies are not considered “currencies”, and as a result, the IRC Section 899 doesn’t apply. In contrast, under § 988(a) (1) (A) generally a taxpayer’s foreign currency gain or loss  is computed separately and treated as ordinary income or loss rather than capital gains or losses.

3- Payments made in cryptos for sale goods and services are income

People who receive cryptocurrency as payment for the sale of their goods and services, must include its US dollars fair market value at the time of its receipt in determination of their revenue.

For income tax purposes, the basis of cryptocurrency that a taxpayer receives as payment for goods or services is the US dollars fair market value of the cryptocurrency as of the date of its receipt.

4- Cryptos are valued at time of receipt or payment

For determination of US income tax, transactions involving cryptocurrency must be reported in US dollars. As such, taxpayers must convert the cryptocurrency fair market value into US dollars as of the date of payment or receipt.

For the cryptocurrency listed on an exchange like Coinbase, the exchange rate is established by market supply and demand, the fair market value of the cryptocurrency is determined by converting the cryptocurrency into US dollars at the exchange rate in a reasonable manner and applied consistently.

5- Mining cryptos and revenue recognition

The act of a taxpayer uses high-tech computers and validates cryptocurrency transactions and maintaining the public transaction ledger is called mining.

Under current law, the fair market value of the cryptocurrency as of the date of receipt should be included in the taxpayer’s gross income.

The AICPA has proposed the revenue recognition be postponed until the product is sold or otherwise exchanged. This proposal has not been adopted, yet.

6- Mined cryptos are self-employment income

Taxpayers mining cryptocurrency as a trade or business not as an employee of another business, would have to pay both income taxes and self-employment taxes (social security and medicare) on their net income.

This means the gross fair market value of the cryptocurrency less all costs attributable to carrying on their trades or business. Crypto miners are treated self-employed as taxpayers engaging in other type of industry.

These trade or business expenses include, but are not limited to, cost of goods sold, rents, auto and truck, insurance, interest, salaries paid to employees and independent contractors, pension plans, travel expenses, home office and deprecation of business equipment such mining computers and others.

7- Filing 1099 for payments to people who work for miners

Taxpayers working as independent contractors for other taxpayers who are mining cryptocurrencies, are also treated as self-employed taxpayers, and their net income from carrying on their trade or business are subject to both income tax and self-employment taxes whether they receive their compensation in fiat money like US dollars or Bitcoin, Ethereum, Bitcoin cash, Cardano (ADA), Litecoin, Dogecoin, BAT, NEO, Ripple XRP, Stellar (XLM), just to name some.

8- Wages and salaries Paid in cryptos are subject W-2 requirements

Similar to “independent contractors”, compensation of employees for services in any cryptocurrency form is subject to federal income tax withholding, Social Security tax, Medicare tax, Federal Unemployment Tax Act (FUTA), and state withholdings, and should be reported on Form W-2, Wage and Tax Statement.

9- Filing 1099-MISC for payments made in cryptos

Payments for business transactions using cryptocurrency are subject to the IRS information reporting requirements to the same extent as US dollars or any other property.

Therefore, when the fair market value of the cryptocurrencies used for payments of

(a) salaries

(b) rents

(c) insurance premiums

(d) other independent contractors’ compensations for rendering services, among others,

are determined to be $600 or more in a taxable year, the payors are required to report them to the IRS Form 1099-MISC, Miscellaneous Income.

It should be noted that the recipients of the value of $600 or more may have income even if they do not receive a Form 1099-MISC.

In other words, recipients cannot exclude from their income the value of the benefits just because they didn’t receive a Form 1099-MISC.

10- Backup withholding for 1099 recipients

Payments made to any non-employees using cryptocurrencies are subject to backup withholding to the same extent as payments made using US dollars or any other property.

Under instructions to IRS Form 1099-MISC, payors making payments of $600 or more in a calendar year, using cryptocurrencies are required to ask for a taxpayer identification number (TIN) from each  payee.

According to IRS Form 1099-MISC instructions, the payors must backup withhold from the payments if:

(a) no TIN obtained prior to making the payments or

(b) payors receive notification from the IRS that backup withholding is required.

11- Filing 1099-K for settlement payments made in cryptos

Generally, a third party such as a credit card company that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO).

A TPSO is required to report payments made to a merchant on an IRS Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both the merchant:

(a) settles more than 200 payments; and,

(b) payments exceed $20,000.

When completing the following boxes on 1099-K:

Box 1a, Gross Payments

Box1b, Card Not Present Transactions

Box3, Number of Payment Transactions

Box5a through 5l, Payments During January through December

Transactions where the TPSO settles payments made with cryptocurrencies are aggregated with the payments made with US dollars, and other property to determine the total amounts to be reported in those boxes.

The value of the cryptocurrencies is the fair market value of them in US dollars on the date of payment.

12- Penalties for failure to comply with tax laws

Taxpayers may be subject to non-compliance penalties using cryptocurrency the same as using US dollar and other property. Penalties include, but are not limited to:

(a) 20-40% for accuracy-related, under § section 6662

(b) 0.05 % per month up to 25% for failure to file tax return under §6651(a)(1)

(c) Failure to pay taxes penalty of 0.5% per month up to 25%, under §6651(a)(2)

(d) Civil fraud of 75%

(e) $10K for failure to non-willfully file FBAR, per account, per year

(f) $100K or 50% for willfully failure to file FBAR

(g) Criminal prosecution for willfully failure to file FBAR

(h) $10K for failure to file FATCA Form 8938 up to $50K

13- Is cryptocurrency subject to FBAR filing?

Notwithstanding that the IRS Notice 2014-21 doesn’t recognize cryptocurrency as “currency”, some tax attorneys including this author believe cryptocurrencies are subject to FBAR filing, because they function as fiat money and appear like “financial assets”.

Further, we advise to file FBAR when in doubt.

In response to my inquiry to the BSA Compliance Department, they have indicated that digital currency like Bitcoin would only be FBAR reportable if it is held in an account with a “financial institution” or someone acting as a “financial institution”.

If digital currency is held in a “digital wallet”, not in a financial institution, it is not reportable on FBAR, because the digital wallet is not a foreign financial account.

14- Regulation of Cryptocurrency Initial Coin Offering (ICO)

According to the following report, Cryptocurrency ICOs are regulated by the Securities and Exchange Commission (SEC):

This Report reiterates these fundamental principles of the U.S. federal securities laws and describes their applicability to a new paradigmvirtual organizations or capital raising entities that use distributed ledger or blockchain technology to facilitate capital raising and/or investment and the related offer and sale of securities.

The automation of certain functions through this technology, ‘smart contracts,’ or computer code, does not remove conduct from the purview of the U.S. federal securities laws.

Crypto related announcements

Zaher Fallahi, Crypto Tax Attorney, Crypto Tax CPA

Zaher Fallahi, cryptocurrency tax attorney, CPA, advises crypto owners with crypto tax, crypto FBAR, crypto FATCA, crypto offshore accounts, and crypto foreign gifts. Nationwide virtual appointments are available @ toll free 1-(877) 687-7558. taxattorney@zfcpa.com

Contact information

E-mail
taxattorney@zfcpa.com

Telephones: 

Ali Fassih
Ali Fassih
1713124814
It's been an honor to know Zaher Fallahi, Esq for the past 49 years.He is one of kind in almost everything. His clients and friends are always his priority. In my long life, I have had the chance to be helped by many people. But ZaherFalahi is a distinguished personality that his professionalism helped me to succeed in life.And that's why I never hesitate to refer my family and friends for all their legal and financial matters to him.
I have had the pleasure of knowing attorney Zaher Fallahi for over 10 years in a professional capacity. Zaher is knowledgeable, diligent, capable and a conscientious attorney. Zaher has a strong reputation in his field - International Tax and Undisclosed Foreign Bank Accounts - and is a good person, in general. I highly recommend him for your legal needs.
Jack
Jack
1699943138
Mr. Fallahi's expertise was critical in helping me navigate my complex tax matter, and helping me resolve it successfully. I am very happy to have worked with him. He was very knowledgeable and had excellent service.
Seyhun F.
Seyhun F.
1698124160
I recently used Mr. Zaher Fallahi’s services for my International Tax and CPA requirements. He has extensive knowledge, remarkable competence, and maintains a highly professional approach. His confidence, diligent follow-up, excellent communication, and accessibility, even during the weekends, provided great comfort. I would highly recommend him to anyone in the need of assistance with international tax matters
Yasamin Khalili
Yasamin Khalili
1696386366
I had the pleasure of working with Mr. Fallahi to obtain an OFAC license, and I couldn't be more satisfied with the results. Mr. Fallahi displayed exceptional expertise in navigating the complex OFAC regulations, ensuring a smooth and efficient process throughout. Mr. Fallahi's attention to detail, professionalism, and commitment to my case were truly impressive. Thanks to Mr. Fallahi, I successfully obtained the OFAC license I needed. I highly recommend him for anyone seeking expert legal assistance in this field.
Yousef Salami
Yousef Salami
1678051820
Dear Dr Fallahi helped me with cryptocurrency and stock market which are my business . During last five years ago, Dr Fallahi and his extremely expert team helped me to make money through crypto taxes and also Mr Jon is knowledgeable and always gives me best advice ,Appreciate your support and kindness.Best regards.
Reza Shafiee
Reza Shafiee
1669154077
I am writing my experience of getting an outstanding advice and going forward with getting an OFAC Permission for a family member. It was done fast, accurate, and perfectly amazing. I would recommend Dr. Fallahi with the highest rating possible. Thank you.
Eric B
Eric B
1669073014
Mr. Fallahi handled filing my foreign inheritance tax return and FBAR international tax filings. He was unassuming, thorough, and responsive. He was available via text, email or call, daytime hours and after hours, weekdays and weekends. He made himself available to my schedule and went above and beyond to ensure my peace of mind. It was a pleasure working with him and someone I highly recommend.
Alireza Modafe
Alireza Modafe
1668394662
I have known Mr. Fallahi for more than five years and have been using his legal expertise for several tax and OFAC related cases. I have been very happy with his advice and the outcome of those cases. He is an excellent attorney and CPA, very professional, responsive, and caring. He goes above and beyond to ensure your peace of mind. I highly recommend him.
A B
A B
1668040092
We hired Mr. Fallahi for an international money transfer matter that required OFAC compliance. Mr. Fallahi was very knowledgeable about the matter and knew all the legal nuances pertaining to the money transfer regulations. He is very kind and responsive and answered all of our questions during consultation session and after it. I definitely recommend him to any one that needs legal help in the similar cases.
Lisa Williams
Lisa Williams
1667953700
We enjoyed working with Mr. Fallahi who is quite knowledgeable and assisted us with an international financial endeavor with great success. We highly recommend him.
Vahid Emadi
Vahid Emadi
1666799203
Mr Fallahi was a great help to me and my family. He is a very knowledgeable lawyer and knows the ups and down of the law about our case. He gave us an step by step direction and made this a very easy process.I have to mention that his staff in Costa Mesa were always polite and helpful.
Mr. Zaher went above and beyond for me. His fees are comparable to other attorneys in the field. Nothing extravagant. In addition I received a personal attention I did not from other attorneys I've worked with. He made himself available when he was out of the office and worked diligently to meet a crucial deadline for me even as a first time customer. I am happy to have found an attorney such as Mr. Zaher.
Hossein
Hossein
1640013657
A dedicated and expert attorney. He spends time with the client as much as needed to answer any doubt or to ensure the client has a peace of mind in his/her case status. I've had attorneys who wouldn't care what happened to my case until I reach out to them. But Mr. Fallahi is quite opposite. He always follows up with you as he has a commitment to his work.
Knowledgeable OFAC and Tax Attorney/CPAI consulted Mr. Zaher Fallahi for OFAC and International Tax Matters. He did a great job for me. He is a very knowledgeable Attorney,CPA. I needed the work completed over the weekend, which he did instead of waiting for two weeks. He followed up on the status of the case regularly and I felt assured that everything was going well. I recommend his services without hesitation.
Nahid Ariant
Nahid Ariant
1639612533
DR. Fallahi is one of the most experienced, trustworthy, and knowledgable professionals in the field. I contacted him for the legal service. He was super helpful during the initial consultation and patiently answered all my questions. His responses were always timely even during the weekends, which I really appreciated . I had a great experience with DR.. Fallahi and would highly recommend him to those who needs legal services!
David Jafari
David Jafari
1637004741
I have known Mr. Fallahi for more than 15 years. He has helped us with several matters involving tax consequences of various transactions from the perspective of a tax attorney as well as matters related to OFAC. He is well versed in his profession and we do not hesitate to go back to him for advice on these matters. I wholeheartedly recommend him.
Bijan Golkar
Bijan Golkar
1636589140
We used Mr Fallahi's OFAC services for an international fund transfer. He is very well-versed in the subject matter and provided invaluable advice. He was available to answer our questions at all time. We appreciate and highly recommend him.
X Chen
X Chen
1633383304
Mr. Fallahi is one of the most experienced, trustworthy, and knowledgable professionals in the field. Recently, I contacted him for the incorporation service. He was super helpful during the initial consultation and patiently answered all my questions. His responses were always timely even during the weekends, which I really appreciated for. I had a great experience with Mr. Fallahi and would highly recommend him to those who needs legal services!
Sarel Gaur
Sarel Gaur
1633004601
Great experience using incorporation services as an MD radiologist! Very professional and responsive attorney + CPA
Greg
Greg
1630268731
We and our CPA worked with Zaher Fallahi to resolve a tax issue with a very satisfactory result. We greatly appreciated Mr. Fallahi’s knowledge, professionalism, and guidance. He was very easy to work with. He took care to patiently explain every step that we took, and completed our project in a very timely manner. Although our tax issue was probably a minor one for him, we never felt that he was giving us anything but top priority. I would highly recommend Zaher Fallahi to anyone needing tax/legal assistance.
Babak Mohseni
Babak Mohseni
1629657993
Hi. About six months ago I contacted Mr. Fallahi in regard to the inheritance money that I was trying to transfer to US. I needed guidance on what the legal procedure to follow is in lieu of all the issues that exist because of the Iran sanctions by the US government.Mr. Fallahi was extremely professional, accessible at all times and provided sound and legal advise. He guided me in the right direction and mentioned all the legal documents that I needed to collect while in Iran. Once i got back to US, he drafted the legal document that I presented to my bank and proceeded with the transfer of funds.I was so pleased with Mr Fallahi's conduct that I got him engaged with my cousin to take care of his case.
Shadi Shiri
Shadi Shiri
1619307484
My husband and I have been Mr. Zaher Fallahi’s client for more than 5 years. Mr. Fallahi has been outstandingly knowledgeable and caring. He is a compassionate professional that You can trust and benefit from his excellent advice. We feel lucky to have him by our side. Wish you all the best Mr. Fallahi.
I have been lucky to have Mr. Zaher Fallahi as my CPA and Tax attorney for the last 5 years. He is very informative and helpful in providing insights and perspectives. Zaher is detail-oriented, trustworthy, confident, and extremely knowledgeable in tax laws. He always goes the extra miles to make sure his client is protected and well served. Zaher is the most responsive person through email, that I have worked with in my life. Having his support is a peace of mind and blessing.
Hossein F
Hossein F
1614790936
Mr. Fallahi is very knowledgeable and highly competent in the OFAC area. He helped me navigate my case with ease and confidence. He advised and explained the steps necessary for the best outcome and frequently followed up with me to ensure my case was progressing. He always responded to my questions in a timely and expedient manner even on weekends. He takes special care of his clients and provides a high level of service. I highly recommend him to my friends and family and anyone who needs legal advice.
Hamid
Hamid
1614702813
Mr. Fallahi helped me with an OFAC related case. He did a great job for me and I am very happy to have worked with him.He explained the details of the process and gave me valuable advice.He is very knowledgeable and always available and responsive, even on weekends.
Golenaz El
Golenaz El
1604919344
Mr. Fallahi is amazing! very professional, very responsive and easy to communicate with. My husband and I had several consultations with Mr. Fallahi and his advise and the way he does business is excellent. You can really trust him and his experience specially with OFAC.We are very thankful and looking forward to do more business with him.I would highly recommend Mr. Fallahi regarding international financial issues and OFAC.
One of the best Tax attorneys and tax professionals in California. I always enjoyed visiting his office to get feedback and advice about various tax issues. Mr. Zaher Fallahi is both a CPA and a Tax Attorney and that combination is very helpful...
Dr. Shadi
Dr. Shadi
1598718032
Mr. Fallahi impressed me with his extensive knowledge and experience as a top of the line professional during the initial consultation. He patiently gave me detailed advice and instructions and gained my full trust. He answered any follow up questions very promptly and within hours, even on the weekends. Moreover, he followed up on my case several times to ensure everything is going well. Since I was on a very tight schedule, he expedited the process and made all the documents ready in one day. My experience was very positive and I would highly recommend him to my friends and family.
P K
P K
1590722834
I have been Mr.Fallahi’s client for over 15 years and as a healthcare professional, Mr. Fallahi and his team have done an excellent job for my personal and corporate taxes and book keeping.During these uncertain times of COVID-19, Mr.Fallahi and his team-members have been there every step of the way to help me file and send my PPP-COVID loan application as soon as it became available and they informed me about the EIDL COVID19 in such timely manner that on April 23, I saw the sum being deposited into my account!Zaher and his team treat every client like family and I am confident that I have been in good hands regarding my business financials and optimized personal and business tax filing for the last 15+ years .
Poorya Kiani
Poorya Kiani
1587264313
I met Mr. Zaher Fallahi two times and received consultation and services. I found him a very knowledgeable and helpful lawyer. He supported me patiently and timely. I really appreciate his excellent services.
David Khorram
David Khorram
1527881180
Zaher Fallahi has been our business financial advisory for over 25 years. His team have assisted us with all bookkeeping and tax preparations. His advise has been instrumental in our business growth. if you are looking for the best and most professional in tax service for personal or your business needs Mr. Fallahi ( Zaher Fallahi, CPA, Attorney At Law ) and his staff are the most knowledgeable and experienced in the business. they are thorough, experienced, intelligent and up to date on anything tax and business law related , financial or business related. Highly recommended
Next Reviewsjs_loader
Request Consultation