Crypto currency tax, government make crypto investor to pay tax for capital gain or profit concept, businessman investor holding bitcoin surprised by government hand issue tax bill.Cryptocurrency holders often want to put their assets into an entity for a host of reasons, such as asset protection, arranging negotiated management rights and exit planning.  This post discusses basic federal income tax issues related to holding cryptocurrency inside a partnership (meaning any entity taxed under Subchapter K* of the Internal Revenue Code; the “Code’).
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Cryptocurrencies might, simplistically, be defined as virtual currencies that use cryptography to secure transactions which are digitally recorded on a widely distributed ledger.  The ledger technology uses independent digital systems to timestamp and harmonize transactions. The cryptocurrencies associated with a ledger are often called “coins” or “tokens”.

Cryptocurrency can be acquired in multiple ways.  This post covers only common methods, such as purchase, gift, or airdrop following a hard fork.  A hard fork occurs when a ledger is subject to modifications that “break” compatibility with an earlier protocol; in other words, each leg of the fork follows different “rules” so the blockchain ledger is split into an original chain and new chain. Hard forks sometimes result in the creation of a new cryptocurrency.  An airdrop is a method of distributing cryptocurrency units to the ledger addresses of individual taxpayers. Airdrops sometimes, but not always, follow hard forks. While blockchain technology is interesting, and an elementary understanding of its technological mechanics is useful, it is the tax consequences of the receipt and disposition of cryptocurrency which is the subject of this post.
Continue Reading Cryptocurrency: The Basics of Tax Treatment and Recognition

Joshua Smeltzer was recently quoted by Law360 in an article on cryptocurrency enforcements:

“The John Doe summons is probably one of the most powerful tools the government has,” Joshua Smeltzer, counsel at Gray Reed, told Law360.

 “Every time the IRS gets information from John Doe summonses, or from audits, or from the threatening letters that

One of the most powerful tools in the Internal Revenue Service arsenal is the John Doe summons. However, as we all learned from Spider-Man, with great power comes great responsibility.

Although it ultimately approved an IRS request to serve a summons for information on the popular cryptocurrency exchange Kraken Inc., the U.S. District Court for

Businessman throwing red arrow dart to virtual target dart board. Setup objectives and target for business investment concept.The IRS has several tools in its arsenal to encourage compliance and audit and enforce those it believes are failing to comply.  One of the most powerful tools is the John Doe summons. A regular IRS summons seeks information on a specific taxpayer.  However, a John Doe summons, as the name implies, involves a group of taxpayers that the IRS cannot identify by name – yet.  Judicial approval is required, but the approval is ex parte (i.e. opposing parties are not notified or can respond before the court rules).  The IRS has used this tool to find tax shelter participants by summonsing the promoters, and most famously foreign banks like UBS, for foreign bank account holders.  The next target, cryptocurrency investors.

The IRS already successfully received thousands of names of account holders from the Coinbase cryptocurrency exchange. Many taxpayers, who received letters from Coinbase about the disclosure, came forward and disclosed assets in their accounts.

The IRS has now secured permission to issue a John Doe summons for cryptocurrency records on payments using a technology company called Circle and another popular cryptocurrency exchange – Kraken. This is all part of what the IRS has called, in public speeches, a “treasure hunt” for unreported cryptocurrency. If you have unreported cryptocurrency transactions, here’s what you should know.
Continue Reading The IRS is Hunting for Cryptocurrency Investors with John Doe Summonses

USA patriotic American flag muscular arm flex adorned in red, white and blue stars and stripes, huge bicep, very cool symbol of fitness, pride, strength and motivation. Isolated vector illustration for easy editing.The battle outside ragin’

Will soon shake your windows

And rattle your walls

For the times they are a-changin’

-Bob Dylan

A change in presidential administrations brings with it the uncertainty of what the political, legal and tax landscape will look like in the future. Statements from the Commissioner of the Internal Revenue Service and the President of the United States are starting to provide clarity of what things will look like going forward.  Here’s what we know and what you, as a taxpayer, should be thinking about as you adjust your financial planning.
Continue Reading IRS Commissioner and President Biden Draw Battle Lines

Video archives concept.What do professional athletes, punk artwork and digital kittens have in common?  They are all part of the expansion of valuable collectible assets using cryptocurrency and blockchain technology.  You can collect digital items for your favorite baseball and basketball players and then sell them in online exchanges.  You can also collect and “breed” your own designer CryptoKitties or purchase a digitally created punk portrait using blockchain technology. Investing in valuable collectibles can be both fun and lucrative. There are now thousands of buyers of these new digital collectibles and transactions involve millions of dollars worth of cryptocurrency.   The current leader in digital collectibles is NBA Top Shots with an active marketplace where the highest asking prices are hundreds of thousands of dollars. What are the tax consequences of these new assets?  Here are some concepts to consider if you have collectible assets, digital or otherwise.
Continue Reading Taxation of Digital Collectibles: Sports, CryptoPunks and CryptoKitties, Oh My!

Cryptocurrency SavingsCryptocurrency is more accessible than ever before. Banks are continuing to both implement procedures for and, in some cases, develop their own cryptocurrencies. Paypal allows users in the U.S. to buy, sell and hold select cryptocurrencies directly through PayPal and it will enable cryptocurrency as a funding source for purchases in 2021. Volatility in the price of cryptocurrencies continues, and is likely to continue, but it is becoming a more recognized investment and method of payment. As more taxpayers integrate cryptocurrency into their finances, they should consider tax implications. Here are some things to remember about current or future cryptocurrency transactions and investment.
Continue Reading Taxpayer Guidelines for Cryptocurrency in 2021