The Internal Revenue Service (“IRS”) will be releasing guidance on the tax treatment and reporting requirements of “virtual currencies” (i.e., cryptocurrencies) very soon, according to Internal Revenue Service Commissioner Charles (“Chuck”) Rettig.

Commissioner Rettig’s statement was prompted by a letter sent to him on April 11, 2019 by a bipartisan group from the House of Representatives.  The letter urged the IRS to issue guidance on the tax consequences and basic reporting requirements for virtual currencies.  In particular, the Representatives’ letter sought guidance on calculating the basis of cryptocurrencies, accounting methods applicable to receiving and disposing of cryptocurrencies, and the treatment of “hard forks.” While the letter was focused primarily on those 3 issues, the Representatives noted that there are many more issues regarding the tax treatment and reporting requirements surrounding virtual currencies aside from those outlined in their letter to the Commissioner.

Approximately one month later, on May 16, 2019, Commissioner Rettig responded to the Representatives’ letter agreeing that “taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions . . . .”  [The Commissioner’s letter is linked here] Commissioner Rettig also stated that he “has made it a priority of the IRS to issue guidance” on this matter and intends “to publish guidance addressing these and other issues soon.”

Practitioners, investors, and on-lookers have been concerned with many issues surrounding the treatment of virtual currencies since the IRS released its initial guidance in 2014.  Notice 2014-21 made it clear that “convertible virtual currency”—the classification the IRS gives to cryptocurrencies—are treated as capital assets, i.e., property,  not as currency.  The Notice also states the basis in cryptocurrencies is the fair market value of the currencies on the date of receipt.

Members of the American Bar Association’s Section on Financial Institutions and Products have speculated that the IRS will release this guidance by the end of June or early July.  The IRS, however, has provided no such timeline.  Until the IRS releases its updated guidance, taxpayers must still comply with the rules set forth in Notice 2014-21.

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