IRS Alters 1040 Form to Make Crypto Question More Prominent
Taxpayers who hold, exchange, and transact cryptocurrencies will soon have one fewer excuses for not reporting these activities to the Internal Revenue Services (IRS). According to the Wall Street Journal, the new Form 1040 for the 2020 tax will make it harder to ignore a question about cryptocurrency assets. Now, the question that asks, “At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency?” along with its “Yes” or “No” checkboxes will appear just below the section of the form where taxpayers enter their name and address, with questions related to the Standard Deduction following. Although this prompt did previously appear on the 2019 version of the form, it was in a different section that not all taxpayers were required to fill out. Offering their two-cents on the matter, Kaplan Financial Education CPA Ed Zollars said of the move, “This placement is unprecedented and will make it easier for the IRS to win cases against taxpayers who check ‘No’ when they should check ‘Yes.'”
This development is the latest effort on the part of the IRS to crack down on those violating reporting rules for cryptocurrency. Last year, it came to light that the agency had sent out more than 10,000 warning letters to those believed to be skirting such rules. In those letters, the IRS also threatened criminal indictments if amends were not made.
Despite the agency’s instance on taxing crypto, there are those that take issue with the way they’re being assessed. Primarily, some argue that the IRS’s guidelines treat crypto holdings like a regular property or investments rather than as a currency. As a result, spending or exchanging assets can trigger taxable events.
Speaking to WSJ, crypto holder Sean Cover pointed out why this doesn’t make sense, noting, “Buying a sandwich with cryptocurrency shouldn’t be a taxable event.” Cover supports a change to the law that would set a $200 transaction threshold before crypto would need to be reported — something that some members of Congress also endorse.
If it weren’t already clear from last year’s actions, the IRS is quite serious about cryptocurrency users properly reporting their holdings. However, until changes are made to these reporting rules, following the guidelines could continue to prove difficult — even with the growing number of tax prep options specializing in crypto. Therefore, we can expect a larger conversation about the nature of cryptocurrencies and how they’re regulated once some of the more pressing issues the country currently faces subside.