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crypto irs like kind exchange
Nexo Logo

US Crypto Investors May Need To Consider Amending Past Tax Returns

Tony Spilotro by Tony Spilotro
3 years ago
in Bitcoin, Cryptocurrency news
Reading Time: 3 mins read
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Tax law surrounding crypto assets is currently convoluted and confusing, even despite Congress demanding the IRS clarify the law, and the IRS taking steps to provide more clarity to crypto investors in the United States.

However, given some recent comments from an IRS official regarding like-kind exchanges, crypto investors based in the US may want to consider going back and amending their tax returns to ensure they comply with the law.

IRS Clarifies Law Surrounding Like-Kind Exchange

Ever since Facebook unveiled its Libra cryptocurrency, the United States government and its many branches of government office have taken notice of the young, wild-west-like crypto industry, and the assets traded within it.

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Related Reading | Confusing U.S. Tax Laws Lead to $5 Billion In Unrealized Crypto Losses 

Concerns over the disruption of the current monetary system, its use for illicit crimes like money laundering or terrorist funding, and more, have caused the US government to crack down on the crypto market.

It’s also caused the IRS to suddenly take more interest in crypto assets, and have updated tax forms to include if a taxpayer owns crypto assets – to ensure they aren’t missed on tax returns. Confusion remains around uncommon aspects of the industry, such as airdrops, but the IRS has finally begun to clarify the law in important areas.

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According to a recent statement by IRS Associate Chief Counsel Suzanne Sinno, the office’s policy regarding like-kind exchanges never applied to cryptocurrencies.

Wikipedia says that a “like-kind exchange under United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset.”

Like-kind exchanges that fall under a 1031 exchange include personal property such as vehicles, or even livestock. The law, however, is clear that it doesn’t include stocks, bonds, notes, or “other securities or evidences of indebtedness or interest.”

Crypto Investors Should Speak To a Tax Professional

Cryptocurrencies, according to Sinno, do not fall under the 1031 exchange tax code and would need to be reported on income taxes.

Prior to 2018, the common belief across the cryptocurrency community was that like-kind exchanges didn’t need to be reported, and thus any trades of Bitcoin into another crypto asset like Ripple, for example, did not need to be specifically reported – only when crypto was traded for cash.

The IRS claims it will be focusing its crackdown on individuals who haven’t reported their crypto taxes at all, and not those that have made mistakes in reporting. But because many crypto investors may not have reported like-kind exchanges, it could put them into the former category.

Related Reading | Overwhelming Majority of Bitcoin and Crypto Investors Refuse to Report Taxes 

Crypto investors who failed to report like-kind exchanges prior to 2018 or at all, would be wise to speak to a tax attorney or accountant to understand their risk exposure, and if filing an amended tax return is suggested.

Filing an amended tax return could result in a taxpayer owing back taxes on crypto trades, especially during the 2017 bull run, however, it is likely a small price to pay compared to the fines and potential jail time for failing to properly report income taxes.

Tags: cryptoirslike-kind exchangetaxesunited states
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a global remote work leader with a decade of award-winning content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter at @tonyspilotroBTC and feel free to drop me a line if you would like to work together.

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