By Gina Gatchell, Director.

It has been widely publicized that the price of Bitcoin and other cryptos have taken a dive in what has been coined (excuse the pun) a crypto winter.

This comes on the coattails of an all-time peak in late 2021. The value of Bitcoin soared last year and in November 2021, it peaked at nearly US $70,000[1].

As a tax professional, I expect that many folks will have cashed in on this peak in the crypto market, and will have realized some large gains at some point during 2021.

If you are thinking about how and whether to report your crypto gains, you’ve come to the right place.

That fact that you are aware of some small voice at the back of your head whispering ‘IRS obligations’ is a start.

First up, the surge in popularity of cryptocurrencies has been apparent for some time now.

It has not gone unnoticed by the IRS, who added the following question onto 2019 federal income tax return forms 1040 (U.S. Individual Income Tax Return), and 1040NR (U.S. Nonresident Income Tax Return).

‘At any time during 2019, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?’

This is your cue to disclose your engagement in crypto for the year for which you’re filing the return.

Do not underestimate the power of the IRS to use this statement to prosecute a taxpayer.

Criminal penalties can be applied by the IRS if wilfulness can be demonstrated.

The IRS can very easily demonstrate wilfulness by reverting to the completed declaration on page one of Form 1040 or 1040NR.

That is all the evidence the IRS needs to prosecute you for wilfulness!

A taxpayer signs a federal income tax return under penalties of perjury that all the information contained on the return is, to the best of their knowledge, true correct and complete[2].

The IRS will not show any leniency and nor will it take ignorance or excuses that a taxpayer did not know that they had to report crypto transactions.

If it’s not apparent by this stage, the question of whether to report crypto transactions or not should be well and truly answered with a resounding ‘yes’.

Through my tax practitioner lens, it is becoming clear that the IRS is garnering further clout by way of quietly announcing that crypto firms will be mandated to issue Form 1099-B in forthcoming years.

Any filer of a U.S. tax return who thinks they will worry about reporting their crypto once that mandate is effective needs to think twice. Imagine this – an individual engages in crypto trading on and off over the years and then one day receives a Form 1099-B from Coinbase. They report the Form 1099-B on their current year’s return, no problem.

Or is it?

What do you think?

Whether you’re a filer, a fellow tax practitioner or simply following this new world of crypto, I would love to hear your thoughts and feedback.

Leave a comment on this blog, or you can drop me a line at gina@nzustax.com.


[1] BTC peaked at US $67,582.60 on November 8, 2021.

[2] The precise wording of the statement can be found on page two of Forms 1040 and 1040NR and reads as follows. ‘Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete’.

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