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1040 tax form change meant to target cryptocurrency transactions

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Posted at 12:48 PM, Dec 18, 2020
and last updated 2020-12-18 13:51:15-05

The IRS added a new question to the top of the 1040 tax form, aimed at identifying people who make money on cryptocurrency transactions. Cryptocurrency, or virtual currency, includes things like Bitcoin and is a digital representation of value that functions as a medium of exchange, according to the IRS.

The question asks: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The only options to answer are yes or no.

The question is similar to one that was added to the form for 2019 tax filings. At the time the question was on a section used to report certain additional income or adjustments, called Schedule 1. However, not a lot of people file Schedule 1 forms with their return. In 2014, the IRS issued a notice that virtual currency should be treated as property for tax purposes.

Tax experts say the move, putting the question on the main form, may signal that the IRS is serious about going after virtual currency investors who under-report their holdings.

“In my view, the IRS is treating omitted virtual currency transactions in the same manner it pursues foreign bank accounts of U.S. taxpayers,” Lewis Taub, a certified public accountant and director of tax services at Berkowitz Pollack Brant Advisors + CPAs told Yahoo Finance. “By asking the question on the top of the first page of the return, the IRS is making it clear that any income from gains or losses from virtual currency must be reported on the return.”

The question will appear at the top of the 1040 form, right below a person’s name and address.

The IRS has increased their investigations into cryptocurrency investments, getting digital currency exchanges to release information about investors activity.

Among recent high-profile cases was software mogul John McAfee, who was accused of tax evasion using cryptocurrency in October, according to FOX News.