Cryptocurrency-General

The following are certain cryptocurrency general information:

The major sources of IRS (Internal Revenue Service) guidelines include:

1. Internal Revenue Code (IRC)

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     The primary source of federal tax law, enacted by Congress. It forms the foundation for all IRS guidance.

     
     

2. Treasury Regulations (26 CFR)

   • Official interpretations of the IRC issued by the U.S. Department of the Treasury. These are divided into:

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       Proposed Regulations

       
       
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       Temporary Regulations

       
       
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       Final Regulations

       
       

3. IRS Revenue Rulings

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     Official interpretations by the IRS that apply the law to specific factual situations. These carry legal weight and are published in the Internal Revenue Bulletin (IRB).

     
     

4. IRS Revenue Procedures

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     Statements of procedure that provide guidance to taxpayers on how to comply with IRS rules and administrative practices (e.g., how to apply for a letter ruling).

     
     

5. Private Letter Rulings (PLRs)

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     Written responses to specific taxpayer requests, applying tax law to their unique facts. PLRs are only binding on the IRS and the requesting taxpayer.

     
     

6. Technical Advice Memoranda (TAMs)

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     Guidance issued in response to requests from IRS field offices on complex tax issues arising in audits.

     
     

7. Notices and Announcements

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     Published in the IRB, these provide guidance on specific issues (e.g., upcoming changes, deadlines, or clarifications).

     
     

8. Internal Revenue Manual (IRM)

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     IRS’s internal operating procedures. While not legally binding on taxpayers, it provides insight into how the IRS administers tax law.

     
     

9. Court Decisions

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     Interpretations of the IRC and IRS regulations by federal courts (e.g., Tax Court, District Courts, Court of Appeals, and the U.S. Supreme Court).

     
     

The major sources of taxation of cryptocurrency include:

1. Capital Gains Tax:

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     Applies when you sell, exchange, or spend cryptocurrency and make a profit.

     
     
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     Calculated based on the difference between the purchase price (cost basis) and the sale price.

     
     
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     Short-term capital gains (held <1 year) are taxed as ordinary income.

     
     
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     Long-term capital gains (held >1 year) are taxed at a lower rate.

     
     

2. Income Tax:

   • Applies when you earn cryptocurrency through:

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       Mining

       
       
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       Staking

       
       
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       Airdrops

       
       
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       Payment for goods or services

       
       
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     The value of the crypto at the time of receipt is taxed as ordinary income.

     
     

3. Mining and Staking Rewards:

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     Treated as taxable income at the fair market value on the date received.

     
     
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     If later sold, capital gains may also apply on any price difference.

     
     

4. Airdrops and Hard Forks:

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     Generally considered ordinary income when received (if you have control over the coins).

     
     
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     Subject to income tax based on the value at the time of receipt.

     
     

5. Crypto-to-Crypto Trades:

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     Exchanging one cryptocurrency for another (e.g., ETH for BTC) is a taxable event.

     
     
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     A capital gain or loss is calculated based on the value of the crypto disposed of.

     
     

6. Use of Crypto to Buy Goods or Services:

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     Spending crypto is treated as a sale for tax purposes.

     
     
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     The difference between the purchase price and the market value at the time of spending is a capital gain or loss.

     
     

7. Gifts and Donations:

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     Gifts may not be taxed at the time of transfer, but recipients may owe taxes on gains when they sell.

     
     
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     Donations to qualified charities can be tax-deductible based on fair market value.

     
     

8. Foreign Asset Reporting (in some countries):

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     If crypto is held in foreign exchanges or wallets, you may need to file FBAR or FATCA forms (e.g., in the U.S.).

     
     

Zaher Fallahi, Tax Attorney, CPA, is a leading Cryptocurrency Tax Attorney and CPA, providing nationwide legal and tax services to cryptocurrency owners with:
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