IRS issues new guidance on cryptocurrency and digital assets
The IRS recently made several updates related to cryptocurrency and digital asset transactions which investors and digital asset owners should be aware of:
Revenue Ruling 2023-14
There has been debate for some time about the treatment of staking activities. Some taxpayers believe that this activity is generating new assets and therefore does not constitute a taxable transaction until the asset is sold. The IRS had issued guidance to confirm that the Fair Market Value of staking rewards is to be included in gross income in the tax year the rewards are received. Unfortunately, the IRS did not clarify the character of this income (ordinary vs investment income).
Revenue Procedure 2024-28 and related regulations
This revenue procedure outlines changes in reporting requirements that will be phased in for tax years 2025 and 2026 related to digital currency transactions. There will be a new reporting form, 1099-DA, that will replace Form 1099-B for sale transactions, and more information on this will be shared as it becomes available.
The regulations issued include additional information about calculating gains or losses from digital asset transactions. For businesses accepting digital assets as a form of payment or using it to pay for expenses, a review of these new regulations is needed.
Please contact your ShindelRock tax professional for more details and to clarify if these new regulations affect you.